Final answer:
The interest expense reported for Global Sales' bond's first payment on June 30, 2024, is $432, derived from subtracting the semiannual premium amortization ($737.50) from the semiannual coupon payment ($1,170).
Step-by-step explanation:
The student asked about calculating the interest expense for Global Sales' bond's first payment on June 30, 2024. The bond has a face value of $18,000, was issued at a premium (for $29,800), has a stated rate of 13%, and pays interest semiannually. Using the straight-line method to amortize the bond premium, we can determine the interest expense for the first payment.
First, calculate the total annual coupon payments: $18,000 bond value * 13% interest rate = $2,340 annual interest. Since interest is paid semiannually, one payment will be half of $2,340, which is $1,170. To find the interest expense, we must consider the premium amortization. The bond was issued at a $11,800 premium ($29,800 - $18,000). Using the straight-line method, we divide the premium by the total number of interest payments over the life of the bond. In 8 years, there are 16 periods (8 years * 2 payments per year), so each period will amortize $737.50 of the premium ($11,800 / 16 periods). Thus, for the first interest expense, we subtract the semiannual premium amortization from the coupon payment: $1,170 coupon payment - $737.50 premium amortization = $432.50 interest expense (rounded to the nearest dollar gives us $432).