Question

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.

Answer 1

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

Step-by-step 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