On January 1, 2016, BSC Corp issued a 10-year, $10,000,000, 7% bond. The interest is payable...

On January 1, 2016, BSC Corp issued a 10-year, $10,000,000, 7% bond. The interest is payable semi-annually. The market rate of interest for companies similar to BSC is 5%. BSC uses the effective-interest amortization method.

The bond liability on BSC’s balance as of December 31, 2016 (the first year of the bond) is closest to:

A. $11,435,336

B. $11,305,500

C. $11,497,889

D. $11,558,916

Based on the same information provided above, BSC’s interest expense for December 31, 2017 (the second year of the bond) is closest to:

A. $287,447.

B. $284,280.

C. $285,452.

D. $288,973.

Expert Solution


Q.1	Correct Option A i.e. $11,435,336
Q.2	Correct Option B i.e. $284,280

	Bond Amortization schedule
	Semiannual	cash interest	Interest Exp	Premium Amortization	Carrying Value
	0				11,558,916
	Jun-16	350000	288,973	61,027.10	11,497,889
	Dec-16	350000	287,447	62552.778	11,435,336	Bond Liability on 31 Dec 2016
	Jun-17	350000	285,883	64116.597	11,371,220
	Dec-17	350000	284,280	65719.512	11,305,500	Interest Exp $284280


	Calculate issue price of Bond

	Semiannual	Face value + Interest	PVF @2.5%	PRESENT Value
	1	350000	0.97560976	341463.41
	2	350000	0.9518144	333135.04
	3	350000	0.92859941	325009.79
	4	350000	0.90595064	317082.73
	5	350000	0.88385429	309349
	6	350000	0.86229687	301803.9
	7	350000	0.84126524	294442.83
	8	350000	0.82074657	287261.3
	9	350000	0.80072836	280254.93
	10	350000	0.7811984	273419.44
	11	350000	0.76214478	266750.67
	12	350000	0.74355589	260244.56
	13	350000	0.72542038	253897.13
	14	350000	0.7077272	247704.52
	15	350000	0.69046556	241662.94
	16	350000	0.67362493	235768.73
	17	350000	0.65719506	230018.27
	18	350000	0.64116591	224408.07
	19	350000	0.62552772	218934.7
	20	10350000	0.61027094	6316304.3

	Issue price of Bond			11558916

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