The fiscal year ends December 31 for Lake Hamilton Development. To provide fundi
ID: 2417047 • Letter: T
Question
The fiscal year ends December 31 for Lake Hamilton Development. To provide funding for its Moonlight Bay project, LHD issued 5% bonds with a face amount of $680,000 on November 1, 2016. The bonds sold for $601,412, a price to yield the market rate of 6%. The bonds mature October 31, 2036 (20 years). Interest is paid semiannually on April 30 and October 31.
1- What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2016? Interest Expense: ___________
2- What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2016? Bonds Payable:_________ Interest Payable: ___________
3- What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2017? Interest Expense: ____________
4- What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2017? Bonds payable:__________ Interest Payable: ___________
Explanation / Answer
2) Interest payable (17,000*2/6) $5,667
Bonds paayble 680,000
Discount on bonds payable :
(680,000 - 601,412) 78,588
less:amortisation
(1042*2/6) 347 (78,241) $601,759
Part 3
1-1to 4/30 (18,042 *4/6) $12,028
5/1 - 10/30 18,074
11/1 - 12/31 6,035
Total $36,137
Part 4
Interest paayble (17,000 *2/6) $5,667
Bonds paayble 680,000
Discount on bonds 78,588
less:4/30/17 amortisation (1,042)
10/30/17 (1,074)
12/31/17 (1,106*2/6) (369) (76,103) $603,897
Date Cash payment Effective interest Increase in Balance Balance 11/1/16 $601,412 4/30/16 17,000 18,042 1,042 602,454 10/30/17 17,000 18,074 1,074 603,528 4/30/18 17,000 18,106 1,106 604,634