McNeil Corporation issued $750,000 of 6​%, 10​-year bonds payable on January​ 1, 2019. The market interest rate at the date of issuance was 4​%, and the bonds pay interest semiannually​ (on June 30 and December​ 31). McNeil ​Corporation's year-end is June 30. McNeil prepared an​ effective-interest amortization table for the bonds through the first three interest payments as​follows:

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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McNeil Corporation issued $750,000 of 6​%, 10​-year bonds payable on January​ 1, 2019. The market interest rate at the date of issuance was 4​%, and the bonds pay interest semiannually​ (on June 30 and December​ 31). McNeil ​Corporation's year-end is June 30. McNeil prepared an​ effective-interest amortization table for the bonds through the first three interest payments as​follows:

 

Use the amortization table for McNeil Corporation's bonds to answer the following questions:
1. How much cash did McNeil Corporation borrow on January 1, 2019? How much cash will
McNeil Corporation pay back at maturity?
2. How much cash interest will McNeil Corporation pay each six months?
3. How much interest expense will McNeil Corporation report on Jline 30, 2019, and on
December 31,2019? Does the amount of interest expense increase or decrease each
period? Why?
Transcribed Image Text:Use the amortization table for McNeil Corporation's bonds to answer the following questions: 1. How much cash did McNeil Corporation borrow on January 1, 2019? How much cash will McNeil Corporation pay back at maturity? 2. How much cash interest will McNeil Corporation pay each six months? 3. How much interest expense will McNeil Corporation report on Jline 30, 2019, and on December 31,2019? Does the amount of interest expense increase or decrease each period? Why?
Semiannual
Interest Date
Interest
Payment
Premium
Account
Balance
Interest
Premium
Amortization
Bond Carrying
Expense
Amount
Jan 1, 2019
122,636
872,636
Jun 30, 2019
22,500
17.453
5,047
117,589
867 589
Dec 31, 2019
22,500
17,352
5,148
112,441
862,441
Jun 30, 2020
22,500
17.249
5.251
107.190
857.190
Transcribed Image Text:Semiannual Interest Date Interest Payment Premium Account Balance Interest Premium Amortization Bond Carrying Expense Amount Jan 1, 2019 122,636 872,636 Jun 30, 2019 22,500 17.453 5,047 117,589 867 589 Dec 31, 2019 22,500 17,352 5,148 112,441 862,441 Jun 30, 2020 22,500 17.249 5.251 107.190 857.190
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