You have obtained the following schedule of long-term debt from McNeil Company f

Question

You have obtained the following schedule of long-term debt from McNeil Company for the audit of financial statements for the year ended December 31, year 3. Notes Interest Due Date yer 3 AdditionsPayments 12/31/year3 payable Rate Description Mortgage | 6.25% 16/30/year12 | $1,104,000 Beginning Balance Ending Balance 0 $96,000 $1,008,000 Payable | 12/3 l/year 141 | 4/30/year 3 | 4/30/year 13 NowNUnsecured 16.00% ryle 7,500,000 0 625,000 6,875,000 31 Notes Payable Secured | 3,000,000 | 5.75% 0 3,000,000 0 57 Bonds Convertible | 4.00% 01 $6,000,000 0 6,000,000 bok Debentures Total 5.50% si 1,604,0001 $6,000,000 | $3,721,000 | $ 13,883,000 | ,7s0 Additional information: Mortgage payable and unsecured notes payable are paid with related interest at the end of each month. Secured bond was paid on the due date. The interest on this bond was payable yearly and it was Convertible debentures were issued on May 1, year 3. The interest on this debt is payable yearly paid on April 30, year 3 on the anniversary day of the debt issuance. 1. The auditor's expectation with regard to interest expense is v714,7 2. The interest expense recorded on the company's books for year 3 is $782,500. The auditor most likely will conclude that: d Bon AAAS e for COM 3. The auditor's expectation for interest payable ecember 31, year 5 is:

Explanation / Answer

1. The monthly schedule of Mortgage payable payments is as follows:

Monthly payments = 96000/12 = 8000

Closing balance of loan = Opening balance-8000

The monthly schedule of Secured loan payments

Monthly rate = 6%/12 = 0.5%

Monthly principal payment = 625000/12 = 52083

Total interest expense

Mortgage payable = 66144

Unsecured loans = 432813

Secured bonds = 5.75%*3000000*4/12 = 57500

Convertible debentures = 6000000*4%*8/12 = 160000

Total interest = 716456

The difference is due to rounding off differences if the mortgage payment table is rounded off

Q3: Interest payable on convertible bonds = 6000000*4%*8/12 = 160000

Mortgage payable Monthly rate= 6.25%/12 0.005208 Month Opening balance Interest Closingbalance 1 1104000 5741 1096000 2 1096000 5699 1088000 3 1088000 5657.6 1080000 4 1080000 5616 1072000 5 1072000 5574.4 1064000 6 1064000 5532.8 1056000 7 1056000 5491.2 1048000 8 1048000 5449.6 1040000 9 1040000 5408 1032000 10 1032000 5366.4 1024000 11 1024000 5324.8 1016000 12 1016000 5283.2 1008000

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