Question

At the beginning of 2017, Waterway Industries issued 10% bonds with a face value of $5500000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $5095200 to yield 12%. Waterway uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2017? (Round your answer to the nearest dollar.)

please explain how to get answer

Answer 1

First, drawing up the amortisation table,
Effective interest rate amortisation of Bond Discount
Date	Int.payment-Stated at 5%*Face value	Int. Expense--Yield 6%*Previous Carrying value	Discount amortised	Debit balance in Bond Discount a/c	Credit balance in Bonds Payable a/c	Carrying value of Bonds
A	B	C	D=C-B	E	F	G=F-E
	Credit Cash	Debit Interest expense	Credit Bond discount
Jan 1,2017				404800	5500000	5095200
June 30,2017	275000	305712	30712	374088	5500000	5125912
31-Dec-17	275000	307555	32555	341533	5500000	5158467
June 30,2018	275000	309508	34508	307025	5500000	5192975
31-Dec-18	275000	311578	36578	270447	5500000	5229553
June 30,2019	275000	313773	38773	231674	5500000	5268326
31-Dec-19	275000	316100	41100	190574	5500000	5309426
June 30,2020	275000	318566	43566	147008	5500000	5352992
31-Dec-20	275000	321179	46179	100829	5500000	5399171
June 30,2021	275000	323950	48950	51879	5500000	5448121
31-Dec-21	275000	326887	51887	-9	5500000	5500009
So with reference from the above schedule,
Interest expense to be reported for the year 2017 will be 305712+307555=
613267