Question

1. Gold Enterprises recently issued $40 million of 12% coupon bonds, payable semiannually, which mature in 10 years. The bonds were sold for $37,796,299 to yield a 13% annual rate.

1. Use the table below to show the amortization of the discount, interest expense, and the carrying amount of the bonds from issuance till the end of Period 2. (3/.   )

	Interest expense	Cash interest paid	Discount amortization	Discount balance	Bond payable, net
0
1
2

2. Explain in your words why interest expense differs from interest paid? (1/. )

Answer 1

Explain in your words why interest expense differs from interest paid?

Answer: It is beacuse Interest expense is calculated using beginning bond payable and yield rate where as Interest paid is calculated and paid on Bond face value using bond coupon rate.

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