Question

You are the new controller for Moonlight Bay Resorts. The company CFO has asked you to determine the company’s interest expense for the year ended December 31, 2018. Your accounting group provided you the following information on the company's debt: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

1. On July 1, 2018, Moonlight Bay issued bonds with a face amount of $2,300,000. The bonds mature in 15 years and interest of 11% is payable semiannually on June 30 and December 31. The bonds were issued at a price to yield investors 12%. Moonlight Bay records interest at the effective rate.
2. At December 31, 2017, Moonlight Bay had a 10% installment note payable to Third Mercantile Bank with a balance of $670,000. The annual payment is $145,000, payable each June 30.
3. On January 1, 2018, Moonlight Bay leased a building under a finance lease calling for four annual lease payments of $70,000 beginning January 1, 2018. Moonlight Bay’s incremental borrowing rate on the date of the lease was 10% and the lessor’s implicit rate, which was known by Moonlight Bay, was 9%.

Required:
Calculate interest expense for the year ended December 31, 2018. (Round your answer to nearest whole dollar.)

Answer 1

28 I bet x" be Interest months - Intey est expense for the year ended December 31, 2018 face value of Investment no o is hor 211785.236 mody Explanation : the value of bunds purchased. Then in terest Yield ris 12.1. Of X - 0.12 X from 1 January to 30th June $ 2 300 000 x lll. x 6112 = $ 126 sool fordono for 6 From 1 July to 3114 December $ 133457.50 ($ 2 300 000 + $ 126 500) X 11). 6112 Hence, Interest in a years $126500 + $ 133457.50 $259957.50 $259957.so is equal to 12 1. in teuest Yield to investor 0.12x = $ 259 957.50 $259957.50 $ 2166312:50 Bonds should be issued at dis wont ie. ter than lulun face value * Dermacamo - $ 2196 3.12.50 Rate of Effective in teuest - Interest Amount $2.59 957.50 x loo $ 2300 DOO 5 • 11:30 Dildom? i.e. に 0.12 $ 2166 312.50 then less

Bonds issued on July, 2018 OY Interest 2017 Then in teuest from July I to 11.3.1. of $ 2300 000 X 6 $ 61425. Mi? 3 10 . 31" December is $ 129950 * 2 300 000 XG 5 on Bunds for the year 31 December 2018 is $ 129956 (2) Notes Payable balance = $640000 Helleen on 31 December Installment Amount $145000 $1450vo is inclusive of both interest from 31 December 2017 to 30 June 28 18 and Principal. Rate of Interest = 10. Calculation of Interest portion : $ 670000 x 10 il. X $33500 T2 Principal Amount a $ 145000 - $33500 outstanding principal balance as on I ſuly 2018 is $ 670000 - $ 111 500 - $ 588 5ool Interest accured up to 31 December 2018 $558500 x 10.1 x6/12 = $ 2 7925 Total in tenest expenditure on notes payable for the year $33500 + $ 27925 (3) Annual Install ment a $ 70000 Implicit interest rate bolo 9 1 DES

2018 is $ 22KO y 211785.236 PUOA = installment & Puap (in) ProA= $ 70ooo x Prafl 9 of 4 $ 70 000 PUOA PVOA x 3.23972 = $ 226780.40 Cash Price of Building - $ 226 780.40 Outstanding balance as on 31 december 2018 + $ 226780.40 Interest rate gy Then Interest with respect to finance lease = 900 x $ 2267 80:40 1 $ 20410.236 6 PVOA Present Value of ordinary Annuity . Prata Present value annuity factor is interest rate implicit in lease number of Period i.e. 4 years. na Inteuest expense for the year ended 31st december 2018 ping is (v + (2) + (3) e $129950+ $61425 + $ 20410-236 $ 211785.2362 To tal in tenest expense for the year ending 31st December