Question

Problem 14-8 (Algo) Bonds; effective interest; partial period interest; financial statement effects [LO14-2] 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 $600,000 on November 1, 2021. The bonds sold for $540,622, a price to yield the market rate of 8%. The bonds mature October 31, 2041 (20 years). Interest is pald semiannually on April 30 and October 31 and is determined using the effective interest method. Required: 1. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31 2021? 2. What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2021? 3. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2022? 4. What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2022? (For all requirements, do not round your intermediate calculations. Enter your answers in whole dollars.) 1. Interest expense 2 Bonds payable Interest payable 3 Interest oxpense Bonds payable Interest payable

Answer 1

1	Interest Expense	$                      7,208.00
2	Bonds Payable	$                5,40,830.00
	Interest Payable	$                      7,000.00
3	Interest Expense	$                   43,292.00
4	Bonds Payable	$                5,42,122.05
	Interest Payable	$                      7,000.00

Working:  

1) Amount of interest expense 21,625 *2/6   = $7,208

2) Interest payable (21,000*2/6)                                                   $5,667

Bonds payable                                     680,000

Discount on bonds payable :

(600,000 - 540,622)            59,378

less: amortisation

(625*2/6)                                      208(59170)                   $540830

Part 3

1-1to 4/30    (21,625 *4/6)                                         $14,417

5/1 - 10/30                                                                   21,650

11/1 - 12/31                                                                   7,225

Total                                                                         $43,292

Part 4

Interest payable (21,000 *2/6)                                                                 $6,000

Bonds payable                                                     600,000

Discount on bonds                          59,378

less:4/30/22 amortisation                (625)

10/30/22 (650)

12/31/22 (676*2/6)                        (225)    (57,878)                 $542,122