Calculate the amount at which the loan notes should be shown in the statement of financial position at the end of each of these years.

Question description

On 1st January 2012, a company which prepares financial statements to 30th June each year buys $400,000 of 5% loan notes for $411,225. Interest will be received half-yearly on 30th June and 31st December and the loan notes will be repaid at a premium of 10% on 31st December 2014. The effective rate of interest is 3.5% per half year.

Required:

(a) Calculate the amount of interest income that should be recognized in the company’s financial statements for each of the years to 30 June 2012, 2013, 2014 and 2015.

(b) Calculate the amount at which the loan notes should be shown in the statement of financial position at the end of each of these years.

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