Answer:
a)
period interest interest discount amortized bond's
payment expense on BP discount carrying value
0 49,320.60 750,679.40
1 32,000 37,533.97 43,786.63 5,533.97 756,213.37
2 32,000 37,810.67 37,975.96 5,810.67 762,024.04
3 32,000 38,101.20 31,874.76 6,101.20 768,125.24
4 32,000 38,406.26 43,786.63 6,406.26 774,531.50
b)
December 31, 2017, accrued interest on bonds payable
Dr Interest expense 19,050.60
Cr Interest payable 16,000
Cr Discount on bonds payable 3,050.60
c)
total interest expense year 2007:
($37,533.97/2) + $37,810.67 + ($38,101.20/2) = $18,776.99 + $37,810.67 + $19,050.60 = $75,638.26
Explanation:
the market price of the bonds:
$800,000 / 1.05¹⁰ = $491,130.60
$32,000 x 8.1109 (PV annuity factor, 4%, 10 periods) = $259,548.80
market price = $750,679.40
discount on bonds payable $49,320.60
discount amortization first payment = (750,679.40 x 0.05) - 32,000 = 5,533.97
discount amortization second payment = (756,213.37 x 0.05) - 32,000 = 5,810.67
discount amortization third payment = (762,024.04 x 0.05) - 32,000 = 6,101.20
discount amortization fourth payment = (768,125.24 x 0.05) - 32,000 = 6,406.26
