3.Smith & Sons, Inc., sold $700,000 face value, five percent coupon rate, four-y

Question

3.Smith & Sons, Inc., sold $700,000 face value, five percent coupon rate, four-year bonds, for an aggregate issue price of $692,000. Calculate the total interest expense to be recorded by the company over the four-year life of the bonds.

4. Compute the interest accrued on each of the following notes payable owed by Northland, Inc., on December 31:

Use 360 days for calculations and round the nearest dollar.

The following note transactions occurred during the year for Towell Company:

Prepare the general journal entries necessary to adjust the interest accounts at December 31.
Use 360 days for calculations and round to the nearest dollar.

Lender Date of Note Principal Interest Rate (%) Term Maple November 21 $20,000 9% 120 days Wyman December 13 16,000 10% 90 days Nahn December 19 18,000 11% 60 days

Explanation / Answer

Solution 3:

Total interest expense to be recorded by the company over the four-year life of the bonds is as calculated below:

Total interest expense over the four year life is $148,000

A B C D E F Semiannual Interest Period Carrying Value at beginning of period Annual Interest Expense at to be recorded Annual Interest payment to bondholders Amortization of Bond Discount Unamortized Bond Discount at end of Period Carrying Value at end of period C+D 700,000*5% 8,000/4 (A+D) 0 $ 8,000.00 $692,000 1 $692,000 $37,000 $35,000 $2,000 $6,000 $694,000 2 $694,000 $37,000 $35,000 $2,000 $4,000 $696,000 3 $696,000 $37,000 $35,000 $2,000 $2,000 $698,000 4 $698,000 $37,000 $35,000 $2,000 $0 $700,000 $148,000

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