Question

Marla, Inc. issued $6,000,000 of 12% bonds on December 1, Year 1, due on December 1,...

  1. Marla, Inc. issued $6,000,000 of 12% bonds on December 1, Year 1, due on December 1, Year 6, with interest payable each May 31 and November 30. The yield to maturity is 16%. What will be Marla, Inc.'s interest expense for the fiscal year ended November 30, Year 2 related to this bond issue?

a.

$623,372

b.

$720,000

c.

$835,610

d.

$881,046
Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Working as follows:

Issue price of the bond:
Interest [$6,000,000 × 12% × 6/12] $360,000
PVF (8%, 12) 7.53607
Maturity value $6,000,000
PVAF (8%,12) 0.397113
$2,712,985.20 $2,382,678
Issue price of bond $5,095,663.20

Prepare schedule as follows:

Date Cash payment Interest Expense Amortization of Discount Carrying value
Dec. 1 $5,095,663
May. 31 Y1 $360,000 $407,653 $47,653 $5,143,316
Nov. 30 Y1 $360,000 $411,465 $51,465 $5,194,781
May. 31 Y2 $360,000 $415,583 $55,583 $5,250,364
Nov. 30 Y2 $360,000 $420,029 $60,029 $5,310,393

Year 2 Interest Expense = $415,583 + $420,029 = $835,612

Hence, the correct option is [c]

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
On January 1, 2018, Baddour, Inc., issued 12% bonds with a face amount of $170 million....
On January 1, 2018, Baddour, Inc., issued 12% bonds with a face amount of $170 million. The bonds were priced at $149.0 million to yield 14%. Interest is paid semiannually on June 30 and December 31. Baddour’s fiscal year ends September 30. Required: 1. What amount(s) related to the bonds would Baddour report in its balance sheet at September 30, 2018? 2. What amount(s) related to the bonds would Baddour report in its income statement for the year ended September...
On January 1 of the current year, Feller Corporation issued $6,000,000 of 10% debenture bonds on...
On January 1 of the current year, Feller Corporation issued $6,000,000 of 10% debenture bonds on a basis to yield 9%, receiving $6,269,160. Interest is payable annually on December 31 and the bonds mature in 6 years. The effective-interest method is used. What is the interest expense for the first year? What is the interest expense for the second year?
1. On January 1 of the current year, the Queen Corporation issued 9% bonds with a...
1. On January 1 of the current year, the Queen Corporation issued 9% bonds with a face value of $81,000. The bonds are sold for $78,570. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, five years from now. Queen records straight-line amortization of the bond discount. Determine the bond interest expense for the year ended December 31. 2. The Marx Company issued $88,000 of 12% bonds on April 1 of...
On January 1, Year 1, Young Company issued bonds with a face value of $132,000, a...
On January 1, Year 1, Young Company issued bonds with a face value of $132,000, a stated rate of interest of 16 percent, and a 10-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 15 percent at the time the bonds were issued. The bonds sold for $138,625. Young used the effective interest rate method to amortize the bond premium. Required: a. Determine the amount of the premium...
Mellilo Corporation issued $4,400,000 of 20-year, 9.5 percent bonds on July 1, 2018, at 98. Interest...
Mellilo Corporation issued $4,400,000 of 20-year, 9.5 percent bonds on July 1, 2018, at 98. Interest is due on June 30 and December 31 of each year, and all of the bonds in the issue mature on June 30, 2038. Mellilo's fiscal year ends on December 31. 1. Record the issuance of bonds. 2. Record the payment of interest and amortize bond discount. 3. Record the final interest payment and amortize bond discount. 4. Record the retirement of bonds at...
Mellilo Corporation issued $4,400,000 of 20-year, 9.5 percent bonds on July 1, 2018, at 98. Interest...
Mellilo Corporation issued $4,400,000 of 20-year, 9.5 percent bonds on July 1, 2018, at 98. Interest is due on June 30 and December 31 of each year, and all of the bonds in the issue mature on June 30, 2038. Mellilo's fiscal year ends on December 31. 1. Record the issuance of bonds. 2. Record the payment of interest and amortize bond discount. 3. Record the final interest payment and amortize bond discount. 4. Record the retirement of bonds at...
Parker Pyrotechnics, Inc. has three bond issues outstanding at 12/31/17: Bond A--$1,000,000, 8% bonds issued on...
Parker Pyrotechnics, Inc. has three bond issues outstanding at 12/31/17: Bond A--$1,000,000, 8% bonds issued on January 1, 2017, due December 31, 2024. Interest is payable June 30 and December 31. Bonds were initially priced to yield 8%. Bond B--$1,000,000, 8% bonds issued on January 1, 2017, due December 31, 2026. Interest is payable June 30 and December 31. Bonds were initially priced to yield 8.5%. Bond C--$1,000,000, 8% bonds issued on February 1, 2017, due January 31, 2022. Interest...
Chang Corporation issued $6,000,000 of 9%, ten-year convertible bonds on Jan 1, 2017 at 102. The...
Chang Corporation issued $6,000,000 of 9%, ten-year convertible bonds on Jan 1, 2017 at 102. The bonds were dated Jan 1, 2017 with interest payable June 30 and December 31. Bond discount is amortized semiannually on a straight-line basis. Each $1,000 debenture is convertible into 40 shares of Chang $20 par common stock. On Jan 1, 2018, $1,200,000 of these bonds were converted. What should be the amount of the debit to Interest Expense on June 30, 2017? a.   $306,000...
On January 1, 2021, Baddour, Inc., issued 12% bonds with a face amount of $175 million....
On January 1, 2021, Baddour, Inc., issued 12% bonds with a face amount of $175 million. The bonds were priced at $153.5 million to yield 14%. Interest is paid semiannually on June 30 and December 31. Baddour’s fiscal year ends September 30. Required: 1. What amount(s) related to the bonds would Baddour report in its balance sheet at September 30, 2021? 2. What amount(s) related to the bonds would Baddour report in its income statement for the year ended September...
On January 1, 2017, Banek Inc. issued $350,000 of 8%, 9 year bonds for $309,086, which...
On January 1, 2017, Banek Inc. issued $350,000 of 8%, 9 year bonds for $309,086, which implies a market (yield) rate of 10%. Semiannual interest payable on June 30 and December 31 of each year. A. Show computations to confirm the bond issue price B. Inidicate the financial statement effects using the template for 1) bond insurance 2) semiannual interest payment and discount authorization on June 30, 2017 and 3) semiannual interest payment and discount amortization on December 31, 2017.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT