On April 1, 2017, MacKinnon Corporation issued $1,200,000 of 15 year, 5% bonds w
ID: 2599620 • Letter: O
Question
On April 1, 2017, MacKinnon Corporation issued $1,200,000 of 15 year, 5% bonds when the market rate was 6%. Interest is payable semi-annually on Sept 30 and March 31. The bond discount or premium is amortized using the effective-interest method. The company has a December 31 year-end. Use these formulas to calculate the values and round to the nearest dollar PV = C / (1 +r) PVAordinary = C * (1-(1+r)^-t)/r Question 14 (1 point) Assume no bonds were retired, how much interest expense will the company record over the life of the bonds (rounded to nearest dollar)? $1,080,000 O $1,015,257 O $1,017,603 o $1,775,660 o $900,000Explanation / Answer
value of bond
interest*PVAF at 3% for 30 semiannual period + face value*PVF at 3% at 30th semiannula peiod
30000*19.60044 + 1200000*.411986
1082396.4
interest
30000
face value
1200000
PVAF
1-(1+r)^-n / r
1-(1.03)^-30 / .03
19.60044
PVF at 3% at 30the semiannual period
1/(1+r)^n
1/(1.03)^30
0.41198676
date
cash paid =2.5% of face value
interest expense = 3% of carrying value
discount amortized = interest expense-cash paid
carrying value of discount to be amortized = carrying value in discount on bonds payable-discount amortized
bonds payable
carrying value in bonds payable = bonds payable- discount on bonds payable
0
117603.6
1200000
1082396
1
30000
32472
2472
115132
1200000
1084868
2
30000
32546
2546
112586
1200000
1087414
3
30000
32622
2622
109963
1200000
1090037
4
30000
32701
2701
107262
1200000
1092738
5
30000
32782
2782
104480
1200000
1095520
6
30000
32866
2866
101614
1200000
1098386
7
30000
32952
2952
98663
1200000
1101337
8
30000
33040
3040
95623
1200000
1104377
9
30000
33131
3131
92491
1200000
1107509
10
30000
33225
3225
89266
1200000
1110734
11
30000
33322
3322
85944
1200000
1114056
12
30000
33422
3422
82522
1200000
1117478
13
30000
33524
3524
78998
1200000
1121002
14
30000
33630
3630
75368
1200000
1124632
15
30000
33739
3739
71629
1200000
1128371
16
30000
33851
3851
67778
1200000
1132222
17
30000
33967
3967
63811
1200000
1136189
18
30000
34086
4086
59726
1200000
1140274
19
30000
34208
4208
55517
1200000
1144483
20
30000
34334
4334
51183
1200000
1148817
21
30000
34465
4465
46718
1200000
1153282
22
30000
34598
4598
42120
1200000
1157880
23
30000
34736
4736
37384
1200000
1162616
24
30000
34878
4878
32505
1200000
1167495
25
30000
35025
5025
27480
1200000
1172520
26
30000
35176
5176
22305
1200000
1177695
27
30000
35331
5331
16974
1200000
1183026
28
30000
35491
5491
11483
1200000
1188517
29
30000
35656
5656
5827
1200000
1194173
30
30000
35825
5827
0
1200000
1200000
total interest recorded over the life of bond
1017601
Answer is
1017603
Difference in due to rounding off of decimal value
value of bond
interest*PVAF at 3% for 30 semiannual period + face value*PVF at 3% at 30th semiannula peiod
30000*19.60044 + 1200000*.411986
1082396.4
interest
30000
face value
1200000
PVAF
1-(1+r)^-n / r
1-(1.03)^-30 / .03
19.60044
PVF at 3% at 30the semiannual period
1/(1+r)^n
1/(1.03)^30
0.41198676
date
cash paid =2.5% of face value
interest expense = 3% of carrying value
discount amortized = interest expense-cash paid
carrying value of discount to be amortized = carrying value in discount on bonds payable-discount amortized
bonds payable
carrying value in bonds payable = bonds payable- discount on bonds payable
0
117603.6
1200000
1082396
1
30000
32472
2472
115132
1200000
1084868
2
30000
32546
2546
112586
1200000
1087414
3
30000
32622
2622
109963
1200000
1090037
4
30000
32701
2701
107262
1200000
1092738
5
30000
32782
2782
104480
1200000
1095520
6
30000
32866
2866
101614
1200000
1098386
7
30000
32952
2952
98663
1200000
1101337
8
30000
33040
3040
95623
1200000
1104377
9
30000
33131
3131
92491
1200000
1107509
10
30000
33225
3225
89266
1200000
1110734
11
30000
33322
3322
85944
1200000
1114056
12
30000
33422
3422
82522
1200000
1117478
13
30000
33524
3524
78998
1200000
1121002
14
30000
33630
3630
75368
1200000
1124632
15
30000
33739
3739
71629
1200000
1128371
16
30000
33851
3851
67778
1200000
1132222
17
30000
33967
3967
63811
1200000
1136189
18
30000
34086
4086
59726
1200000
1140274
19
30000
34208
4208
55517
1200000
1144483
20
30000
34334
4334
51183
1200000
1148817
21
30000
34465
4465
46718
1200000
1153282
22
30000
34598
4598
42120
1200000
1157880
23
30000
34736
4736
37384
1200000
1162616
24
30000
34878
4878
32505
1200000
1167495
25
30000
35025
5025
27480
1200000
1172520
26
30000
35176
5176
22305
1200000
1177695
27
30000
35331
5331
16974
1200000
1183026
28
30000
35491
5491
11483
1200000
1188517
29
30000
35656
5656
5827
1200000
1194173
30
30000
35825
5827
0
1200000
1200000
total interest recorded over the life of bond
1017601
Answer is
1017603
Difference in due to rounding off of decimal value
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