Question

Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2021. The bonds have a 10-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds. Payment Cash Effective Interest Decrease in Balance Outstanding Balance 11,487,747 1 400,000 344,632 55,368 11,432,379 2 400,000 342,971 57,029 11,375,350 3 400,000 341,261 58,739 11,316,611 4 400,000 What is the interest expense on the bonds for the year 2022

Answer 1

Answer:

$680,759

Explanation:

In order to calculate the interest expense in the year 2022, we need to calculate the percentage of effective interest first.

Interest rate =  Interest for period 1/ opening outstanding balance

Interest rate = $344,632/11,487,747

Interest rate = 0,0299 or 3%

Interest expense for first 6 months of 2022 = $341,261

Interest expense for remaining 6 months of 2022 = 11,316,611 x 3%

Interest expense for remaining 6 months of 2022 =  $339,498

Total interest expense for 2020 =  $341,261 + $339,498

Total interest expense for 2020 = $680,759