Apple Corporation issued $360,000 of 6%,10-year bonds on January 1,2021,for $311,076.

Apple Corporation issued $360,000 of 6%,10-year bonds on January 1,2021,for $311,076. This price provided a yield of 8%on the bonds. Interest is payable semiannually on June 30 and December 31. If Apple uses the effective-interest method and the fiscal year-end is on October 31, the amount of interest expense reported on the income statement for the year ended October 31,

2021 should be:

Solutions

Expert Solution

Interest expense till June 30 = Book Value of Bond * Yield /2

Interest expense till June 30 = 311076 * 8%/2

Interest expense till June 30 = $12443.04

Interest Expense from June 30 to Oct 31 = (Book Value of Bond + (Interest expense till June 30 - Coupon Paid)) * Yield / 4

Interest Expense from June 30 to Oct 31 = (311076 + (12443.04 - 10800)) * 8% / 4

Interest Expense from June 30 to Oct 31 = 6254.38

Answer: The amount of interest expense reported on the income statement for the year ended October 31 = $18697.42 (12443.04 + 6254.38)

jeff jeffy answered 2 years ago

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