Question

Sunrise Corporation issued $360,000 of 6%, 10-year bonds on January 1, 2021, for $311,076. This price provided a yield of 8% on the bonds. Interest is payable semiannually on June 30 and December 31. If Sunrise uses the effective interest method and fiscal year-end is on October 31, the amount of interest expense reported on the income statement for the year ended October 31, 2021 should be: (Do not add dollar sign; do not add commo by yourself to your amount, round the answer to the whole number)

Answer 1

Interest paid on June 30 = 360000*6%*6/12 = 10800

Interest expense on June 30 = 311076*8%*6/12 = 12443

Discount amortized = 12443-10800 = 1643

Interest paid on October 31 = 360000*6%*4/12 = 7200

Interest expense on October 31 = (311076+1643)*8%*4/12 = 8339

Total Interest expense on October 31 = 12443+8339 = 20782