the government issues the bonds described in question 2. it makes its frst semiannual interest payment of $30,000. how much interest expense/expenditure would it likely have to report in its governmentwide and governmental fund statements?

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25-10-2022
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the government issues the bonds described in question 2. it makes its frst semiannual interest payment of $30,000. how much interest expense/expenditure would it likely have to report in its governmentwide and governmental fund statements?

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contexto38 contexto38 · Answer 1 · 2022-10-28T06:10:41-04:00

Interest expense of $30,160 must be disclosed on both the government-wide report and the governmental fund statement for the first semi-annual interest payment of $30,000.

Interest expenditure and interest payment are two different phrases that refer to interest; interest expense is the value of interest that is determined using the carrying value of the bonds and the market yield, whereas interest is only paid at the coupon rate.

The amortized discount is the distinction between interest expense and interest payment.

Accordingly,

Interest payment

= Par value of bonds x Coupon rate

= $1,000,000 x 6% x 6/12

= $30,000

Interest expense

= Carrying value of bonds x Market yield x 6/12

= ($1,000,000 - $27,092) x 6.2% x 6/12

= $30,160

As a result, the $30,160 in interest expenses must be disclosed in both the Government fund statement and the Government-wide report.

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