The fiscal year ends December 31 for Lake Hamilton Development. To provide fundi

Question

The fiscal year ends December 31 for Lake Hamilton Development. To provide funding for its Moonlight Bay project, LHD issued 9% bonds with a face amount of $640,000 on November 1, 2018 The bonds sold for $585,094, a price to yield the market rate of 10%. The bonds mature October 31, 2038 (20 years). Interest is paid semiannually on April 30 and October 31 and is determined using the 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 calculation. Enter your answer in whole dollars.) $ Interest expense Bonds payable Interest payable 9,752 54,754 9,600 9,767 $640,000 9,600 2 3. Interest expense$ Bonds payable Interest payable 4

Explanation / Answer

AMORTIZATION TABLE: DATE CASH INTEREST DISCOUNT UNAMORTIZED CARRYING INTEREST EXPENSE AMORTIZED DISCOUNT VALUE OF BONDS 01.11.2018 54906 585094 30.04.2019 28800 29255 455 54451 585549 31.10.2019 28800 29277 477 53974 586026 30.04.2020 28800 29301 501 53473 586527 Req 1: First interest expense till April 30 2019: 29255 Interest expense till Dec31 2018 (29255*2/6) 9752 Req 2: Bonds Payable on Dec 31 20 18 Bonds payable par value 640000 Less: Discount unamortized (54906-152) 54754 Bonds payable(net) 585246 Interest payable on Dec 31 2018 (28800*2/12) 9600 Req 3: Interest expense for YEar2019 Interest expense for date April30 (29255*2/3) 19503 Interest expense for Oct 30 29277 Interest expense till Dec 31 (29301*2/6) 9767 Total Interest expense for Dec 2019 58547 Req 4: Bonds payable on Dec 31 2019: Bonds payable par value 640000 Less: Discount unamortized (54906-455-477-167) 53807 Bonds payable net value 586193 Interest payable on Dec 31 2019 (28800*2/6) 9600

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