On July 1, Year 1, Danzer Industries Inc. issued $40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of $37,282,062. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

Question

Business

Sampson

16 April, 06:46

On July 1, Year 1, Danzer Industries Inc. issued $40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of $37,282,062. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

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Nayeli Lara · Answer 1

The question says; Determine the total interest expense for Year 1, using the interest method.

Explanation:

Total interest expense = Issue price x Market rate x Time Issue price = $37,282,062 market rate = 8% Time = December 31 - June 30 which is approximately 6months

Plugging the values in the equation;

= 37282062 x 8% x 6/12 = $1491282.48

Total interest expense = $1491282.48