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The Stockholders’ Equity section of the Balance Sheet of Carpenter Corporation on December 31, 2015, showed...

The Stockholders’ Equity section of the Balance Sheet of Carpenter Corporation on December 31, 2015, showed Cumulative Preferred 9% Stock, $52 par (1,425 shares authorized, 459 shares issued); Common Stock, $23 par (29,825 shares authorized,10,264 shares issued); and Retained Earnings of $1,014. The Notes to the Financial Statements in the Annual Corporate Report for 2015 indicate that the market values of the stock are $42 per share (Cumulative Preferred) and $17 per share (Common). Forecasts in the Annual Report also indicate that investments in future growth in 2016 are expected to result in sustained increased profits. In consideration of these matters, the Board of Directors has secured approval from the Securities and Exchange Commission for a bond issuance. The Board of Directors has also decided to forego paying dividends in 2015, and to repurchase shares of the corporation’s common stock at par, with a view to reselling the stock when market rates rise with increased profitability.

On January 2, 2016, $205,369 in 11 year, 7% bonds with a market interest rate of 9%, and interest payable semiannually, were issued for $186,714. On January 3, the corporation purchased 1,975 shares of its common stock at par. Profits soared during 2016, and on May 1, the corporation resold 1,583 shares of treasury stock, at $6 above par. On June 30, bond interest was paid. On December 31, the corporation showed an after tax Net Income of $56,582. On December 31, bond interest was paid; and dividends were declared and paid. Common shareholders received $2.34 per share.

What is the Bond Interest Expense on the Income Statement on December 31, 2016?

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Answer #1
Date Cash Paid Interest Expense Discount Amortization Bond Carrying Value
Jan. 2, 2016 186714.00
June 30, 2016 7187.92 8402.13 1214.21 187928.21
Dec. 31, 2016 7187.92 8456.77 1268.85 189197.06
Total 16858.90

Cash paid = $205369 x 7% x 1/2 = $7187.915

Interest expense June 30 = $186714 x 9% x 1/2 = $8402.13

Interest expense Dec. 31 = $187928.22 x 9% x 1/2 = $8456.77

Bond Interest Expense on the Income Statement on December 31, 2016: $16858.90

Note: All amounts have been rounded off to the nearest cent in the absence of specific instructions regarding the same. Kindly round off as required. The final answer could vary due to any different rounding off used.

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