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At the beginning of 2017, Wallace Corporation issued 10% bonds with a face value of $6,000,000. These bonds mature in the five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $5,558,400 to yield 12%. Wallace uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2017? (Round your answer to the nearest dollar.)

Respuesta :

Answer:

$669,018

Explanation:

The computation of the interest expense reported is shown below:

Date     Interest Payment  Interest       Amortization of   Balance  Book

        (Face Value ×          Expense [B]  Bond Discount                    value

          Coupon Rate                               (A-B)                                      of

            × 1 ÷ 2) [A]                                                               Bonds

02-Jan-17                                                                     $441,600 $5,558,400

30-Jun-17 $300,000      $333,504       $33,504  $408,096      $5,591,904

(6,000,000 ×10% ×1 ÷ 2) ($5,558,400 × 12%   ($441,600 - $33,504)

                                                × 1 ÷ 2)                   (5,558,400 + 33504)

31-Dec-17 $300,000      $335,514

($6,000,000 × 10% ×1 ÷ 2) ($5,591,904 × 12% ×1 ÷ 2)    

The total amount of interest expense is

= $333,504 + $335,514

= $669,018

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