On January 1, 2017, Huber Co. sold 12% bonds with a face value of $2,000,000. The...
On January 1, 2017, Huber Co. sold 12% bonds with a face value of $2,000,000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $2,154,500 to yield 10%. Using the effective-interest method of amortization, interest expense for 2017 is what?
**Please explain process. I answered a very similar question, but can not seem to recreate my results using my method.
Homework Answers
Answer : $214,836.25 (or) $214,836
The face value of the bond = 2,000,000
Bond price = $ 2,154,500
Bond coupon rate = 12%
Yield rate = 10%
Cash interest = $2,000,000 * 12% *6/12 = $120,000
Interest Expenses = $ 2,154,500*10%*6/12 = $107,725
= $ 2,142,225*10%*6/12 = $ 107,111.25
Answers : Interst Expenses for 2017 = $ 107,725 + $107111.25 = $214,836.25 (or) $214,836 (Answer)
| Period | Cash Interest | Interest Expenses | Bond premium Amortization | Bond Carrying value |
| January 01 | 2,154,500 | |||
| June 30 | 120,000 | 107,725 | 12275 | 2,142,225 |
| December 31 | 120,000 | 107,111.25 | 12889 | 2,129,336 |
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