The fiscal year ends December 31 for Lake Hamilton Development. To provide fundi
ID: 2583768 • Letter: T
Question
The fiscal year ends December 31 for Lake Hamilton Development. To provide funding for its Moonlight Bay project LHD issued 5% bonds with a face amount of S650.000 on November 1, 2016 The bonds sold for $574 879, a pr to y eld the market rate of 6%. The bonds mature October 31, 2036 20 years Interest is paid semiannually on April 30 and October 31 Required 1. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2016 expense 2. What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2016? Bonds payable Interest payable 3. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 20177 nterest expense 4. What amountis) related to the bonds wil LHD report in its balance sheet at December 31, 2017?Explanation / Answer
1)Interest paid :650000*.05*6/12=16250
1)iNTEerest expense for 31 december 2016 : Interest payable for next semiannual month *n/6
= 17246.37*2/6= 5748.79 [1nov -31dec= 2 monhs]
2)Interest payable = cash interest payable next semiannual month *n/6
= 16250*2/6 =5416.67
Discount amortised =Interest expense v-interest payable
= 5748.79-5416.67
= 332.12
bond payable =carrying value as on 1 /11/2016+ discount amortised
= 574879+332.12
= 575211.12
3)Interest expense 31 dec 2017:17307.05*2/6 = 5769.02
4)Interest payable :16250*2/6= 5416.67
Discount amortised : 5769.02-5416.67 = 352.35
Bond payable =carrying value as on 31 october 2017+ discount amortised
576901.63+352.35
= 577253.98
Date INterest paid Interest expense Discount amortised carrying value 1/11/2016 574879 30/4/2017 16250 17246.37 [574879*.06*6/12] 996.37 [17246.37-16250] 575875.37 [574879+996.37] 31/10/2017 16250 17276.26 [575875.37*.06*6/12] 1026.26 [17276.26-16250] 576901.63 30/4/2018 16250 17307.05 [576901.63*.066/12] 1057.05 577958.68Related Questions
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