Question

Required information (The following information applies to the questions displayed below.] PowerTap Utilities is planning to issue bonds with a face value of $3,000,000 and a coupon rate of 10 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. PowerTap uses the effective-interest amortization method. Assume an annual market rate of interest of 12 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) 2. What amount of interest expense should be recorded on June 30 and December 31 of this year? (Round your final answers to nearest whole dollar amount.) June 30 December 31 Interest expense

Answer 1

	Face Value	$935,400
	$3,000,000 x PV of $1 6%, 20
	$3,000,000 x 0.31180
	Interest	$1,720,485
	$150,000 x PVA of $1 6%, 20
	$150,000 x 11.4699
	Selling Price of the Bonds	$2,655,885
		Cash Paid	Interest Exp.	Discount Amortization	Carrying Value
	Date of Issue				$2,655,885
	June 30, Year 1	$150,000	$159,353	$9,353	$2,665,238
	Dec 31, Year 1	$150,000	$159,914	$9,914	$2,675,152
		June 30	December 31
2	Interest Expense	$159,353	$159,914
		June 30	December 31
4	Bonds Payable	$2,665,238	$2,675,152