Question

Calculate the interest expense that Jessie Co. will show with respect to these bonds in its income statement for the fiscal year ended September 30, 2019, assuming that the premium of $82,000 is amortized on a straight-line basis.

Answer 1

Find below missing part of the question:

Jessie Co issued $2 million face amount of 7%,20 years bonds on 1 April 2019.The bonds pay interest on semiannual basis on 30 September and 31 March each year.

$67,950.00

Step-by-step explanation:

Interest expense=semiannual coupon-semiannual premium amortization

semiannual coupon =face value*coupon rate

face value is $2 million

coupon rate is 7%

semiannual coupon =$2,000,000*7%*6/12=$ 70,000.00

semiannual premium amortization=premium/years to maturity*2

premium is $82,000

years to maturity is 20

semiannual premium amortization=$82,000/(20*2)=$2050

interest expense=$70,000-$2,050=$67,950.00