Use the following information about HamsterFarm Industries to answer the next 4 questions. On January 1,...

Use the following information about HamsterFarm Industries to answer the next 4 questions.
On January 1, 2012, HamsterFarm Industries issued a four‐year, $20,000, 6% bond. The interest is payable semi‐annually each June 30 and December 31. The market rate of interest on January 1, 2012 is 7%. Tonika uses the effective‐ interest amortization method.

What is the issue price of the bonds on January 1, 2012? (Round to the nearest dollar. No dollar signs or commas).
What is the carrying value of the bonds on December 31, 2014? (Round to the nearest dollar. No dollar signs or commas).
How much interest expense would be recognized in the calendar year 2015 income statement? (Round to the nearest dollar. No dollar signs or commas).
How much cash would be paid to investors on June 30, 2012? (Round to the nearest dollar. No dollar signs or commas).

Expert Solution

Solution:

1.

For the next two questions we need to prepare the amortizaton schedule as follows

2.

The carrying value of the bonds on December 31, 2014 - 19180

3.

Interest expense would be recognized in the calendar year 2015 income statement (693+697) - 1390

4.

Cash would be paid to investors on June 30, 2012 is the semiannual coupon payment = 20000*6%/2 = 600

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ekkarill92 answered 1 year ago

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