Question

The fiscal year ends December 31 for Lake Hamilton Development. To provide funding for its Moonlight Bay project, LHD issued 9% bonds with a face amount of $610,000 on November 1, 2018. The bonds sold for $557,668, a price to yield the market rate of 10%. 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. 20 points Required: 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? (For all requirements, Do not round your intermediate calculation. Enter your answer in whole dollars.) eBook Print References 1. Interest expense 2. Bonds payable Interest payable Interest expense Bonds payable Interest payable

Answer 1

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Answers are highlighted in yellow: Solution: 1) Interest Expense (557668*10%)/12*2 $ 9,294 Bonds payable (557668)+433/6*2) 557812 Interest Payable (27450/6+2) = $ 9,150 3) Interest Expense, 2019 = (27883/6*4)+(27905)+(27928/6*2) = 55803 4) Bonds payable = (558556)+(478/6*2) = 558715 Interest payable = (27450/6*2) = $ 9,150 4.50% A. B = FV x Rate C = E*5% Year Interest Cash paid Expense Nov.1, 2018 Apr 30, 2019 2745027883 Oct.31, 2019 27450 27905 Apr.30, 2020 2745027928 Oct 31, 2020 2745027952 D=(B-C) E=E+D Discount Carrying Amort. value 557668 433 558101 455 558556 478 559034 502 559536