Question

. The Schüssel Company issues a $900,000 principal, three-year zero-coupon bond on January 1, 2017. The effective rate is 8% and discounting is semi-annual. a. Calculate the interest expense they will record on June 30, 2017. b. Calculate the net bond payable as of December 31, 2018. c. Calculate the total interest expense over the life of the bond.

Answer 1

a.calculate interest expense they will record on june 30 2017	28,451.32
b.net bond payable as of december 31 2018.	832,100.59
c.calculate the total interest expense over life of the bond	188,716.93

working:

issue price =$900,000 / (1+r)^n

here,

r=8% per annum

=>4% per semi annual period.

=>n=3 years *2 semi annual periods

=>6 periods.

=>issue price = 900,000 / (1.04)^6

=>711,283.073.

interest expense on june 30 2017 = $711,283.073 issue price * 4% =>$28,451.32..

net bond payable as of december 31 2018

=>900,000 *1/(1+r)^n

r =4%

n = 2 periods.

=>900,000*1/(1.04)^2

=>$832,100.59.

c.total interest over life of bond = 900,000 prinicpal - 711,283.073 issue price

=>$188,716.927.