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When Patey Pontoons issued 10% bonds on January 1, 2018, with a face amount of $560,000,...

When Patey Pontoons issued 10% bonds on January 1, 2018, with a face amount of $560,000, the market yield for bonds of similar risk and maturity was 11%. The bonds mature December 31, 2021 (4 years). Interest is paid semiannually on June 30 and December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Q.6 - What is the interest expense for 2018?

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Answer #1
Issue Price:
Present value of interest received for 8 periods ($ 28000* Annuity of period 8 at 5.5% i.e.6.3346) 177369
Present value of Maturity amount received at the end of Year-4 ($ 560,000* PVF i.e. 0.6516) 364896
Issue Price: 542265
Discouont on Bonds issue: 560,000-542265 = 17735
Amortization table
Date Cash interest Interest Discount Unamortized Carrying
Expense Amortized Discount value of Bonds
30.06.2018 28000 29825 1825 15910 544090
31.12.2018 28000 29925 1925 13985 546015
Total Interest expense for year 2018 : 29825+29925 = 59750
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