Access the Microsoft website: www.microsoft.com. Select \"Investor Relations\" a
ID: 2462611 • Letter: A
Question
Access the Microsoft website: www.microsoft.com. Select "Investor Relations" and then "Sec Filings." Access the 10-K for the year ended June 30, 2012. (The debt was converted in June 2013). Find disclosure notes related to the zero-coupon convertible notes. Use the information in the financial statement note accessed . The actual present value of the debt was $1,183,115 (PV of $1,250,000 discounted for 3 years at 1.85%). Consider the conversion component and the debt issue costs for the entry. The notes were issued in 2010, what is the amount of interest expense, if any, did Microsoft record the first year the notes were outstanding?
Explanation / Answer
Discount factor rate @1.85%
Inflow ever year = $1250000
Time period = 3years
Statement of computation of interest expense for 3 years
( Amount in $)
Year Particular p v factor(a) amount(b) present value(c=a*b) interest expense( d=b-c)
1 inflow of cash 0.9818 1250000 1227250 22750
2 0.9640 1250000 1205000 45000
3 0.9465 1250000 1183115 66885
Hence , Microsoft record must be liability of outstanding interest first year $22750 and second year $45000 and third year interest liability $66885 payable .