The fiscal year ends December 31 for Lake Hamiton Development. To provide fundin

Question

The fiscal year ends December 31 for Lake Hamiton Development. To provide funding for its Moonlight Bay project bonds with a face amount of $700,000 on November 1, 2018. The bonds sold for $630,726, a price to yield the market rate of 8% The the bonds mature October 31, 2038 (20 years). Interest is paid semiennually on April 30 and October 31 and is determined using effective interest method Required: 1. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2018? 2 What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2018? 3. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2019? 4. What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2019? (For all requirements, Do not round your intermediate celculation. Enter your answer in whole dollars.) 1. Interest expense 2. Bonds payable Interest payable 3. Interest expense 4. Bonds payable Interest payable KPrev4 of 8 Next >

Explanation / Answer

1.

Interest expense = 2/6 * 25229.04 = $8409.68

2.

Interest Payable (2/6 x 24,500) $ 8,167

Bonds Payable $700,000

Less: Discount on bonds payable (700000-630726) = 69274

Add: Ammortisation 2/6*729 = 243

= $630969

3.

1/1-30/4 : (4/6*25229) = 16819

1/5-31/10 : (6/6*25258) = 25258

1/11-31/12 : (2/6*25289) = 8430

Total = 50507

4.

Interest Payable (2/6 x 24,500) $ 8,167

Bonds Payable $700,000

Less: Discount on bonds payable (700000-630726) = 69274

Add : 30/4/19 Ammortization = 729

31/10/19 Ammortization = 758

31/12/19 Ammortization = 2/6*789 = 263

= 632476

Date Cash Payment effective interest Increase in Balance Balance 01-11-2018 630726 30-04-2019 24500 25229.04 729.04 631455.04 31-10-2019 24500 25258.2016 758.2016 632213.2416 30-04-2020 24500 25288.52966 788.529664 633001.7713

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