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, 2021. 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, 2021, Moonlight Bay issued bonds with a face amount of $1,000,000. The bonds mature in 20 years and interest of 7% is payable semiannually on June 30 and December 31. The bonds were issued at a price to yield investors 8%. Moonlight Bay records interest at the effective rate. 2. At December 31, 2020, Moonlight Bay had a 10% installment note payable to Third Mercantile Bank with a balance of $580,000. The annual payment is $100,000, payable each June 30. 3. On January 1, 2021, Moonlight Bay leased a building under a finance lease calling for four annual lease payments of $65,000 beginning January 1, 2021. Moonlight Bay's incremental borrowing rate on the date of the lease was 11% and the lessor's implicit rate, which was known by Moonlight Bay, was 10%. Required: Calculate interest expense for the year ended December 31, 2021. (Round your answer to nearest whole dollar. Enter amount as a positive value.) Interest expense

Answer 1

Calculate interest expense for the year ended December 31, 2021
1) Bond Payable
Face Value (FV)	$1,000,000.00
Nper = 20 years x 2	40
Coupon Rate = 7%/2	3.50%
PMT = FV x Coupon Rate	35000
Rate =8%/2	4.00%
Present Value of Bonds payable = PV(4%,40,-$35000,-1000000)	$   901,036.13
Interest Expenses = $2450891.02x 12%/2	$     36,041.45
Using Table calculate Present Value
PMT= $35,000 x PVA(40,4%)=$35,000 x 19.7928	$   692,748.00
Principal = $1,000,000 x PV 40,4%) = $1,000,000 x0.2083	$   208,300.00
Present Value of Bonds payable =	$   901,048.00
Interest Expenses = 901048 x 4%	$     36,041.92
2) Note Payable
Annual Payment (PMT)	$   100,000.00
Balance (PV)	$   580,000.00
Rate	10.00%
Interest Expense on June 30,2021 = $580,000 x 10% x 1/2	29000
Interest Expense on Dec 31,2021 = $580,000 - (100,000 - $29000 - $29,000) x10% x 1/2	26900
Interest Expenses	55900
Working Note
Interest exp on Dec 2020 and june 2021 = $100,000 x 10% x1/2 = $29000 each
3) Capital Lease
Annual Lease Payment (PMT)	65000
Nper	4
Rate	11.00%
Present Value of Annuity due (PV(1%,4,-65000,0,1)	$   223,841.46
Interest Expense = ($223,841.46- $65000) x 11%	$     17,472.56
using Table Present value of lease = $65,000 x (PVA due 11%,4); $65,000 x 3.4437	$   223,840.50
Interest expense for the year ended December 31, 2021.
Bonds Payable	$     36,041.92
Notes Payable	$     55,900.00
Capital Lease	$     17,472.56
Total Interest Expense	$   109,414