Answer:
Interest expense 2894.7 debit
discount on Bonds Payable 394.7 credit
cash 2500 credit
Interest expense 2906.55 debit
discount on Bonds Payable 406.55 credit
interest payable 2500 credit
Explanation:
We have to solve for the 2013 year which is one year after the issuance ofthe bonds.
We solve for the bond issuance price and then, we construct the bonds schedule and take the numbers from period 3 and 4.
Issuance proceeds: present value fo the coupon payment and maturity at market rate:
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
C 2,500.000
time 10
rate 0.03
[tex]2500 \times \frac{1-(1+0.03)^{-10} }{0.03} = PV\\[/tex]
PV $21,325.5071
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity 100,000.00
time 10.00
rate 0.03
[tex]\frac{100000}{(1 + 0.03)^{10} } = PV[/tex]
PV 74,409.39
PV c $21,325.5071
PV m $74,409.3915
Total $95,734.8986
Now we will calcautlethe interest expense by multiplying carrying value by the market value and sutract from the cash outlay to determinate the amortization on the bonds.
