The notes to the financial statements of Aggarwal Corporation for 2013 reveal th

Question

The notes to the financial statements of Aggarwal Corporation for 2013 reveal the following information with respect to long-term debt. All interest rates in this problem assume semiannual compounding and the effective interest method of amortization using amortized cost measurement based on the historical market interest rate. See the Present and Future Value Tables from the Appendix for help in solving this item. a. Compute the carrying value of the zero coupon notes on December 31, 2013. A zero coupon note requires no periodic cash payments; only the face value is payable at maturity. Do not overlook the italicized sentence above. Round intermediate calculations and final answers to the nearest dollar.

What is the interest expense for the first six months?

Second six months?

Explanation / Answer

1294006 (WN 3)

WN 1

$800000*Present value factor(18 periods,5%)

WN 2

$35000*Present value annuity factor(10 periods,4%) + $1000000*Present value factor(10 periods, 4%)

WN 3

$45000*Present value annuity factor(30 periods, 3%)+ $1000000* Present value factor(30 periods, 3%)

Calculation of Interest Expense

1. 301512*0.05= $15076 (301512*1.05*0.05)=$15829

2. 959446*0.04= $38378 (959446+38378-35000)*0.04=$38513

3. 1294006*0.03= $38820 (1294006+38820-45000)*0.03=$38635

S.No. Particulars Amount for year 2012 Amount for year 2013 1 $ 800000 ZCN 301512 332417 (WN 1) 2 $1000000 7% bonds 959446 (WN 2) 966336 3 $1000000 9% bonds 1305832

1294006 (WN 3)

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