Question

On January 1, 2001, Moon Co. sold $500,000 of its 10-year, 10% bonds for $450,650. Interest is payable semiannually on January 1 and July 1.

Using the effective interest method, what amount should Moon report as interest expense for the six months ended June 30, 2001?

Answer 1

	(a)	Face value of bonds	$500,000
		Sales Price of Bonds	$450,650
		Number of semiannual periods	20	(10*2)
		Semiannual Coupon payment	$        25,000	(500000*0.1*(1/2)
		Terminal cash flow at maturity	$500,000
		Semiannual Yield to maturity of the Bond	5.85%	(Using RATE function of excel with Nper=20, PV=-450650,Pmt=25000,FV=500000)
		Effective Interest Rate Method:
	A	Carrying Value of Bond on January 1, 2001	$450,650
	B	Semiannual yield	5.85%
	C=A*B	Interest expense for the six months ended June30,2001	$26,363.33
		JOURNAL ENTRY:
	.Jan1	Cash	$450,650
		Discount on Bonds payable	$49,350		(500000-450650)
		Bonds payable		$500,000
	.June30	Interest expense	$26,363.33
		Discount on bond payable		$1,363.33
		Cash		$    25,000
											Book1 Microsoft Excel Home Insert Page LayoutFormulas Data Revi ViewDevelope % Cut Σ AutoSum)" A Copy Paste Con attinnalasomat styles insert Olete Format (Clear B i u k 스 를 Merge & Center s-% , a :o Sort & Find & mat Painter Filter Select Editing Formatting-as Table-styles Clipboard Font Alignment Number Sbyles Cells RATE RATE(20,25000,-450650,500000) ) Face value of bonds $500,000 $450,650 Function Arguments Sales Price of Bonds Number of semiannual periods Semiannual Coupon payment 25,000 (500Nper 20 Terminal cashflow at maturity Yield to maturity of the Bond0,500000) Us 20 (101 RAE - 20 Pmt 250OD =25000 P -450650 Fv 500000 -450650 = 500000 10 Type number -0.058500674 12 13 14 15 16 Returns the nterest rate per period of a loan or an investment. For example, use 6%), for quarterly payments at 6% APR Fv is the future value, or a cash balance you want to attain after the Last payment is made. If omited, uses Fv = 0. Formua resut-0.05ESC0674 18 19 Cancel 21 24 25 Sheet1 Sheet2, Sheet3 Edit 11:39 AM O Type here to search A ENG 5/15/2018