Homework Answers
Answer is d). Interest expense = $9,500
Long term debt = $267,500
Explanation:
Difference of Carrying value of Long term debt and Fair value =
$20,000
Remaining life = 8 years
Interest amortisation per year = $20,000 / 8 = $2,500
Amounts to be shown in Consolidated Financial statements on Dec
31, 2018:
Interest expense = $12,000 - $2,500 = $9,500
Long term debt = Value already shown + Increase required due to
diff. in fair value - 1 year interest amortisation
= $250,000 + $20,000 - $2,500 = $267,500
Hence answer is Option D.
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