2. A company issued 10%, 5-year bonds with a par value of $600,000. The market rate...

2. A company issued 10%, 5-year bonds with a par value of $600,000. The market rate when the bonds were issued was 8%. The company received $613,600 cash for the bonds. What is the semi-annual Bond Interest Expense?

Expert Solution

Answer----------$28,640

Working

Bond issue price	$ 613,600.00
Face value	$ 600,000.00
Premium on bonds payable	$ 13,600.00
Number of Interest payments (5 years x 2)	10
Discount/ premium to be amortized per Half year	$ 1,360.00
Cash Interest on bond (600000 x 5%)	$ 30,000.00
Interest expense to be recorded (30000-1360)	$ 28,640.00

.Alternate solution using effective interest method

Answer-----------$24,544

Working

Issue price of Bond	$ 613,600.00
Interest expense at effective interest rate(613600 x 4%)	$ 24,544.00

ekkarill92 answered 1 year ago

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