Question

please show all work and explain 1.Emma Company purchased a machine from Noah Corporation on October 31, 2016. In payment for the $99,000 purchase, Emma issued a one-year installment note to be paid in equal monthly payments of $9,076 at the end of each month. The payments include interest at an annual rate of 18%. When recording the December 31, 2016 payment, the Debit to Interest expense will be? $_________ 2.Ava, Inc., issued 9% bonds, dated January 1, with a face amount of $356,500 on January 1, 2016 for an issue price of 106.5. The bonds mature on December 31, 2025 (10 years). For bonds of similar risk and maturity the market yield is 7%. Interest is paid annually on December 31. What is the carrying value of the bond on December 31,2016?

Answer 1

1) November 2016 interest expense = 99000*18%*1/12 = 1485

Principal payment in november = 9076-1485 = 7591

December 2016 interest expense = (99000-7591)*18%*1/12 = $1371

When recording the december 31,2016 payment, the debit to interest expense will be = $1371

2) Premium on bonds payable = 356500*106.5 -356500 = 23172.50

First year premium amortization = 379672.50*7%-(356500*9%) = 5508

Carrying value of bond on december 31,2016 = 356500+23172.5-5508 = $374164.50 Under effective interest method