Following is the calculation of interest expense, Interest Payment and closing carrying value.
Year | Opening Carrying Value of Bond ( $) | Interest Expense ($) | Total ($) | Interest Payment ($) | Opening Carrying Value of Bond ($) |
7.85% | 7.90% | ||||
1 | 25,00,000 | 1,96,250 | 26,96,250 | 1,97,500 | 24,98,750 |
2 | 24,98,750 | 1,96,152 | 26,94,902 | 1,97,500 | 24,97,402 |
3 | 24,97,402 | 1,96,046 | 26,93,448 | 1,97,500 | 24,95,948 |
4 | 24,95,948 | 1,95,932 | 26,91,880 | 1,97,500 | 24,94,380 |
5 | 24,94,380 | 1,95,809 | 26,90,189 | 1,97,500 | 24,92,689 |
6 | 24,92,689 | 1,95,676 | 26,88,365 | 1,97,500 | 24,90,865 |
7 | 24,90,865 | 1,95,533 | 26,86,398 | 1,97,500 | 24,88,898 |
8 | 24,88,898 | 1,95,378 | 26,84,276 | 1,97,500 | 24,86,776 |
9 | 24,86,776 | 1,95,212 | 26,81,988 | 1,97,500 | 24,84,488 |
10 | 24,84,488 | 1,95,032 | 26,79,520 | 1,97,500 | 24,82,020 |
11 | 24,82,020 | 1,94,839 | 26,76,859 | 1,97,500 | 24,79,359 |
12 | 24,79,359 | 1,94,630 | 26,73,989 | 1,97,500 | 24,76,489 |
13 | 24,76,489 | 1,94,404 | 26,70,893 | 1,97,500 | 24,73,393 |
14 | 24,73,393 | 1,94,161 | 26,67,554 | 1,97,500 | 24,70,054 |
15 | 24,70,054 | 1,93,899 | 26,63,953 | 1,97,500 | 24,66,453 |
16 | 24,66,453 | 1,93,617 | 26,60,070 | 1,97,500 | 24,62,570 |
17 | 24,62,570 | 1,93,312 | 26,55,882 | 1,97,500 | 24,58,382 |
18 | 24,58,382 | 1,92,983 | 26,51,365 | 1,97,500 | 24,53,865 |
19 | 24,53,865 | 1,92,628 | 26,46,493 | 1,97,500 | 24,48,993 |
20 | 24,48,993 | 1,92,246 | 26,41,239 | 1,97,500 | 24,43,739 |
11. Interest payment amount is $ 197,500 P.A.
12. Interest expense for the first interest payment is $ 196,250.
13. Interest expense will decrease with each interest payment.
14. Bonds liability (Carrying value) each interest payment will decrease.
15. The company will pay amount $ 2,512,411 when the bonds mature in 20 years.
13.
Use the following to answer questions 11 - 15 Al issues 7.9%, 20-year bonds with a...
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