Solution:
Bond interest Expense = Carrying Value * Effective interest Rate
Therefore, Interest Expense in this case would be 6/30/21: $3,35,539 * 4% (8%/2) (Interest to be paid semi annually)
Bond Cash Expense = Face Value * Coupon Rate
Therefore, Interest Expense in this case would be 6/30/21: $3,60,000 * 3.5% (7%/2) (semi annually)
Date | Cash paid | Interest Expense | Change in Carrying Value | Carrying Value |
1/1/21 | $3,35,539.00 | |||
6/30/21 | $12,600.00 | $13,421.56 | $821.56 | $3,36,360.56 |
12/31/21 | $12,600.00 | $13,454.42 | $854.42 | $3,37,214.98 |
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