Use the amortization table that you prepared for Standard Autoparts in exercise S7-9 to answer these questions
Question:
Use the amortization table that you prepared for Standard Autoparts in exercise S7-9 to answer these questions about the company's long-term debt:
1. How much cash did Standard Autoparts borrow on January 31, 2020? How much cash will Standard Autoparts pay back at maturity on January 31, 2030?
2. How much cash interest will Standard Autoparts pay each six months?
3. How much interest expense will Standard Autoparts report on July 31, 2020, and on January 31, 2021? Why does the amount of interest expense increase each period? Explain in detail.
Exercise 7-9
Standard Auto parts Inc. issued \(\$ 100,000\) of \(7 \%, 10\)-year bonds at a price of 87 on January 31, 2020. The market interest rate at the date of issuance was \(9 \%\), and the standard bonds pay interest semi-annually.
1. Prepare an effective-interest amortization table for the bonds through the first three interest payments. Use Exhibit 7-3, page 353, as a guide, and round amounts to the nearest dollar.
2. Record Standard's issuance of the bonds on January 31, 2020, and payment of the first semi-annual interest amount and amortization of the bonds on July 31, 2020. Explanations are not required.
Step by Step Answer:
Financial Accounting
ISBN: 9780135433065
7th Canadian Edition
Authors: Walter Harrison, Wendy Tietz, C. Thomas, Greg Berberich, Catherine Seguin