Question

15. On January 1, 2017, Steamers Inc. issues bonds with a face value of $100,000 that mature on January 1, 2020. The bonds make payments of $2,500 on January 1 and July 1. The annual effective interest rate is 10% (5 percent per 6 months). The company correctly sets up the following table: Cash Paid Interest Expense 4,035 Date 1/1/2017 7/1/2017 1/1/2018 7/1/2018 1/1/2019 7/1/2019 2,500 2,500 Carrying amount of the Bonds 80,696 82,230 83,842 85,534 87,311. 89,176 2.500 4.277 2,500 2.500 | 4,366 Assume Steamers Inc. reports its financial statements on March 31 each year. How much interest expense does Steamers Inc. recognize for the twelve months ended March 31 2018? a. 8,147 b. 8,187 c. 8,199 d. 8,226

please explain

Answer 1

Answer: d. 8,226

Calculations:

Given that financial statements are ending on March 31 each year.

So, Interest expense for the twelve months ended March 31,2018 should be calculated from April 1,2017 to March 31,2018.

Interest expense from 4/1/2017 to 7/1/2017 [4,035 x 3/6]	2,018
Interest expense form 7/1/2017 to 1/1/2018	4,112
Interest expense form 1/1/2018 to 3/31/2018 [4,192 x 3/6]	2,096
Interest expense for 12 months ended March 31,2018	8,226