Question

The fiscal year ends December 31 for Lake Hamilton Development. To provide funding for its Moonlight Bay project, LHD issued 7% bonds with a face amount of $510,000 on November 1, 2018. The bonds sold for $459,529, a price to yield the market rate of 8%. The bonds mature October 31, 2038 (20 years). Interest is paid semiannually on April 30 and October 31 and is determined using the effective interest method.

Required: (Having trouble figuring out calculations) :/
1. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2018?
2. What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2018?
3. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2019?
4. What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2019?

1. Interest Expense (4% * 459529 *2/6?)	?
2. Bonds Payable (less discount ?)
Interest Payable
3. Interest Expense
4. Bonds Payable
Interest Payable

Answer 1

Date	cash payment	effective interest	increase in balance	balance
11/1/2018				459529
4/30/2019	17850 (510000*7%/2)	18381 (459529*8%/2)	531	460060
10/31/2019	17850	18402 (460060*8%/2)	552	460612
4/30/2020	17850	18424 (460612*8%/2)	574	461186

Part 1

amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2018 = 18381*2/6=6127

Part 2

amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2018

Interest payable = 17850*2/6= 5950

Bonds payable = 510000

Discount payable

(510000-459529)=50471

Less amortization (531*2/6)=(177)

Discount payable =50471-177= 50294

Bonds payable =510000-50294=459706

Part 3

1/1 - 4/30=18381*4/6= 12254

5/1 - 10/31 =18402*6/6= 18402

11/1 - 12/31 =18424*2/6 = 6141

Total =36797

Part 4

Interest payable =17850*2/6=5950

Bonds payable		510000
Discount on bonds payable
(510000-459529)	50471
Less:amortization 4/30/2019	(531)
Amortization 10/31/2019	(552)
Amortization 12/31/2019(574*2/6)	(191)	(49197)
		460803