You are the new controller for Moonlight Bay Resorts. The company CFO has asked you to determine the company’s interest expense for the year ended December 31, 2018. Your accounting group provided you the following information on the company's debt: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1). On July 1, 2018, Moonlight Bay issued bonds with a face amount of $1,500,000. The bonds mature in 20 years and interest of 9% is payable semiannually on June 30 and December 31. The bonds were issued at a price to yield investors 10%. Moonlight Bay records interest at the effective rate.
At December 31, 2017, Moonlight Bay had a 10% installment note payable to Third Mercantile Bank with a balance of $520,000. The annual payment is $70,000, payable each June 30.
On January 1, 2018, Moonlight Bay leased a building under a finance lease calling for four annual lease payments of $35,000 beginning January 1, 2018. Moonlight Bay’s incremental borrowing rate on the date of the lease was 10% and the lessor’s implicit rate, which was known by Moonlight Bay, was 9%.
Required:
Calculate interest expense for the year ended December 31, 2018.