The following information appeared in the 2008 annual report of Rumours, Inc.:

Long-Term Debt _ [Rumours, Inc. issued] \($10\) million, 10% coupon bonds on January 1, 2005 due on December 31, 2009.
The prevailing market interest rate on January 1, 2005 was 12%, and the bonds pay interest on June 30 and December 31 of each year.
On January 1, 2006, [Rumours issued] \($10\) million, 10% coupon bonds due on December 31, 2010.
The prevailing market interest rate on January 1, 2006 was 8%, and the bonds pay interest on June 30 and December 31 of each year.

Required:

1. See the following (incomplete) table for each bond’s carrying value. Calculate the missing values.

2. How much interest expense did Rumours record in 2008 on the bonds due in 2009?
3. How much interest expense did Rumours record in 2008 on the bonds due in 2010?

Transcribed Image Text:

10% bonds due in 2009 10% bonds due in 2010. Carrying Value December 31, 2007 $9,653.550 ? December 31, 2008 ? $10,362,950