Bonds; effective interest; partial period interest; financial statement effects
Response to the following problem:
The fiscal year ends December 31 for Lake Hamilton Development. To provide funding for its Moonlight Bay project, LHD issued 5% bonds with a face amount of $500,000 on November 1, 2016. The bonds sold for $442,215, a price to yield the market rate of 6%. The bonds mature October 31, 2036 (20 years). Interest is paid semiannually on April 30 and October 31.
Required:
1. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2016?
2. What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2016?
3. What amount of interest expense related to the bonds will LHD report in its income statement for the year ending December 31, 2017?
4. What amount(s) related to the bonds will LHD report in its balance sheet at December 31, 2017?
On January 1, 2016, Darnell Window and Pane issued $18 million of 10-year, zero-coupon bonds for $5,795,518.