Question

(Please show work)

Mcintarfer Corporation issued $200,000 of 8​%, 15​-year bonds payable on January​ 1, 2019. The market interest rate when the bonds were issued was 11​%. Interest is paid semiannually on January 1 and July 1. The first interest payment is July​ 1, 2019. Using the​ effective-interest amortization​ method, how much interest expense will Mcintarfer record on July​ 1, 2019​? Use Excel®  to calculate the issue price.

            $8,602

Answer 1

Answer:

Answer is Interest expense for July 1 ,2019 is $8,602

Bonds Par Value = $200,000

Interest Rate (semi annual ) =8% * 1/2 =4%

Market Rate semi annual = 11% * 1/2 =5.50%

Number of Periods = 15 Years = 30 Periods

Interest Payable semi annual = $200,000 * 4% = $8,000

issued price of Bonds equal to all future payments discounted at market rate

Issued Price = Interest Payment * Present value Annuity Factor at 5.50% 30 periods + Par value * PV factor at 5.50% at 30 th period

Issue price of Bonds = $8,000 * 14.53375   + $200,000 * 0.20064

Issue price of Bonds = $116,270 +$ 40,128 = $156,398

Interest expense = Issued price * Market rate of Interest = $156,398 * 5.50% =$8,601.89 =$8,602

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