Respuesta :
The amount of interest expense for the first semiannual interest period shall be calculated with the help of following formula:
Semiannual interest expense = Semiannual interest payment + Semiannual amortization of discount on issue of bonds
Semiannual interest payment = Bond's Face value * Interets Rate / 2
Semiannual interest payment = 100000*7% / 2 = $3,500
Semiannual amortization of discount on issue of bonds = (Face value - Issue price )/ number of seminnaul periods
Semiannual amortization of discount on issue of bonds = (100000-96526)/20 = $173.70
Hence, Semiannual interest expense = Semiannual interest payment + Semiannual amortization of discount on issue of bonds
Semiannual interest expense = 3500+173.70 = $3,673.70
The company issued a 10-Year Bond at 7% coupon interest. The company has received $96,526 as compared to the face value of $100,000.
Using the straight line method, the company will get its first payment of interest as:
Step 1: The discount amount = Par Value - Market Price
The Discount amount = $100,000 - $96,526
The Discount Amount = $3,474
Step 2: The Semi-Annual Discount Amount = The Discount Amount/(n*2)
The Semi-Annual Discount Amount = $3474/(20)
The Semi-Annual Discount Amount = $173.7
Step 3: Semi - Annual Coupon Interest Amount = Par Value * Coupon Rate/2
Semi - Annual Coupon Interest Amount = $100,000*0.07*0.5
Semi - Annual Coupon Interest Amount = $3,500
Step 4: Interest Exp. for first semi-annual Interest amount = Step 2 + Step 3
= $173.70 + $3500
= $3,673.7
Therefore, the interest expense for the first Semi annual interest amount is $3,673.7.
