On January 1, 2018, Fox Co. issued $400,000, 12%, 2-year bonds that pay interest

Question

On January 1, 2018, Fox Co. issued $400,000, 12%, 2-year bonds that pay interest semi-annually, July 1, and January 1. When issued, investors required 6% interest, and the bonds are due January 1, 2020. Using the effective interest method, what is the bond interest expense that Fox Co. will show on its income statement for the year ending 12/31/2019? Use the appropriate present value factors below to answer this Question: Present Value FactorsTable2%3%4%6%12% Single sum-2 periods.96117 .94260 .92456 .89000 .79719 Single sum-4 periods.92385 .88849 .85480 .79209 .63552 Ordinary annuity-2 periods1.94156 1.91347 1.88609 1.83339 1.69005 Ordinary annuity-4 periods3.80773 3.71710 3.62990 3.46511 3.03735 Annuity due-2 periods1.98039 1.97087 1.96154 1.94340 1.89286 Annuity due-4 periods3.88388 3.82861 3.77509 3.67301 3.40183 $26,357 $22,962 $25,039 $24,000 On January 1, 2018, Fox Co. issued $400,000, 12%, 2-year bonds that pay interest semi-annually, July 1, and January 1. When issued, investors required 6% interest, and the bonds are due January 1, 2020. Using the effective interest method, what is the bond interest expense that Fox Co. will show on its income statement for the year ending 12/31/2019? Use the appropriate present value factors below to answer this Question: Present Value FactorsTable2%3%4%6%12% Single sum-2 periods.96117 .94260 .92456 .89000 .79719 Single sum-4 periods.92385 .88849 .85480 .79209 .63552 Ordinary annuity-2 periods1.94156 1.91347 1.88609 1.83339 1.69005 Ordinary annuity-4 periods3.80773 3.71710 3.62990 3.46511 3.03735 Annuity due-2 periods1.98039 1.97087 1.96154 1.94340 1.89286 Annuity due-4 periods3.88388 3.82861 3.77509 3.67301 3.40183 $26,357 $22,962 $25,039 $24,000 On January 1, 2018, Fox Co. issued $400,000, 12%, 2-year bonds that pay interest semi-annually, July 1, and January 1. When issued, investors required 6% interest, and the bonds are due January 1, 2020. Using the effective interest method, what is the bond interest expense that Fox Co. will show on its income statement for the year ending 12/31/2019? Use the appropriate present value factors below to answer this Question: Present Value FactorsTable2%3%4%6%12% Single sum-2 periods.96117 .94260 .92456 .89000 .79719 Single sum-4 periods.92385 .88849 .85480 .79209 .63552 Ordinary annuity-2 periods1.94156 1.91347 1.88609 1.83339 1.69005 Ordinary annuity-4 periods3.80773 3.71710 3.62990 3.46511 3.03735 Annuity due-2 periods1.98039 1.97087 1.96154 1.94340 1.89286 Annuity due-4 periods3.88388 3.82861 3.77509 3.67301 3.40183 $26,357 $22,962 $25,039 $24,000

Explanation / Answer

Semiannual interest = 400000*.12 *6/12 = 24000

semiannual months = 2*2=4

semiannual yield = 6*6/12 = 3%

Issue price :[PVA 3%,4*Interest ]+[PVF 3%,4*Face value]

          =[3.71710*24000]+[.88849*400000]

      = 89210.4+ 355396

     = 444606

Total interest expense for 2019:11651.39+11311.12 = 22962.51

correct option is "B" =22962

period ending Interest paid Interest expense premium amortised carrying value at end 1 july 2018 24000 444606*.03=13338.18 10661.82 433944.18 [444606-10661.82] 31 dec 2018 24000 13018.33 10981.67   [24000-13018.33] 422962.51   [433944.18-10981.67] 1 july 2019 24000 12688.88 11311.12 411651.39 31dec 2019 24000 12349.54 11651.39 0

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