On January 1, 2024, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below: Payment Cash Payment Effective Interest Increase in Balance Outstanding Balance 6,627,273 1 320,000 331,364 11,364 6,638,637 2 320,000 331,932 11,932 6,650,569 3 320,000 332,528 12,528 6,663,097 4 320,000 333,155 13,155 6,676,252 5 320,000 333,813 13,813 6,690,065 6 320,000 334,503 14,503
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
On January 1, 2024, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below:
| Payment | Cash Payment | Effective Interest | Increase in Balance | Outstanding Balance |
|---|---|---|---|---|
| 6,627,273 | ||||
| 1 | 320,000 | 331,364 | 11,364 | 6,638,637 |
| 2 | 320,000 | 331,932 | 11,932 | 6,650,569 |
| 3 | 320,000 | 332,528 | 12,528 | 6,663,097 |
| 4 | 320,000 | 333,155 | 13,155 | 6,676,252 |
| 5 | 320,000 | 333,813 | 13,813 | 6,690,065 |
| 6 | 320,000 | 334,503 | 14,503 | 6,704,568 |
| ~ | ~ | ~ | ~ | ~ |
| ~ | ~ | ~ | ~ | ~ |
| ~ | ~ | ~ | ~ | ~ |
| 38 | 320,000 | 389,107 | 69,107 | 7,851,247 |
| 39 | 320,000 | 392,562 | 72,562 | 7,923,809 |
| 40 | 320,000 | 396,191 | 76,191 | 8,000,000 |
Required:
- What is the face amount of the bonds?
- What is the initial selling price of the bonds?
- What is the term to maturity in years?
- Interest is determined by what approach?
- What is the stated annual interest rate?
- What is the effective annual interest rate?
- What is the total cash interest paid over the term to maturity?
- What is the total effective interest expense recorded over the term to maturity?
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