The fiscal year ends December 31 for Lake Hamilton Development. To provide fundi
ID: 2529007 • Letter: T
Question
The fiscal year ends December 31 for Lake Hamilton Development. To provide funding for its Moonlight Bay project, LHD issued 9% bonds with a face amount of $640,000 on November 1, 2018, The bonds sold for $585,094, a price to yield the market rate of 10%. The bonds mature October 31, 2038 (20 years). Interest is paid semiannually on April 30 and October 31 and is determined using the effective interest method. Required: 1. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2018? 2. What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2018? 3. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2019? 4. What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2019? For all requirements, Do not round your intermediate calculation. Enter your answer in whole dollars.) 1. Interest expense 2. Bonds payable Interest payable 3. Interest expense 4. Bonds payable Interest payableExplanation / Answer
1. Interest exp for 31st Dec, 2018 = 585094 x 10% x2/12 = 9752 (Using effective int method)
2. Reporting in Balance Sheet
9 % Bond Payable (under LT Liabilities) 640000
Interest Payable (under Current liabilities) 9752
Disound on Bond (under current asset) = (640000 - 585094) - (9752 - 9600*)
= 54906 - 152 = 54754
*Coupon amount = 640000*9%*2/12 = 9600
3. Balance after interest payment of 31 st october = 586026 (Refer Table below)
Interest accrued for 2 month as on 31st march 2019 = 586026 x 10% x2/12 = 9767 (Using effective int method)
4. Reporting 31st december 2019
9 % Bond Payable (under LT Liabilities) 640000
Interest Payable (under Current liabilities) 9767
Disound on Bond (under current asset) = (640000 - 585094) - 455 - 477 - (9767 - 9600*)
= 54906 - 455 - 477 - 167 = 53807 (refer Table below)
Table
Period Cash Payment Interest Net increase Carrying value 01/11/2018 585094 30/04/2019 28800 29254.70 454.70 585548.70 31/10/2019 28800 29277.44 477.43 586026.14