Question

Enviro Company issues 8%, 10-year bonds with a par value of $260,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10%, which implies a selling price of 87 12. The straight-line method is used to allocate interest expense. 1. Using the implied selling price of 87 %, what are the issuer's cash proceeds from issuance of these bonds? 2. What total amount of bond interest expense will be recognized over the life of these bonds? 3. What is the amount of bond interest expense recorded on the first interest payment date? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Using the implied selling price of 87 V, what are the issuer's cash proceeds from Issuance of these bonds? Cash proceeds Required 2 >

Answer 1

Answers

• Question #1
  

[1] Cash proceeds = $ 260000 x 87.50 / 100
= $ 227,500
[2]

Amount Repaid:
20	payments of	$                   10,400.00	$             208,000.00
Par Value at Maturity			$             260,000.00
Total Repayments			$             468,000.00
Less: Amount borrowed			$             227,500.00
Total Bond Interest Expenses			$             240,500.00

[3]

Bond Interest Expense = Discount amortised + Cash Interest
= ($32500 / 20 semi annual payments) + ($260000 x 8% x 6/12)
= 1625 + 10400
= $ 12,025

• Question #2

Date	General Journal	Debit	Credit
Jan-01	Cash ($410000 x 115.25 / 100)	$472,525
	Bonds Payable		$410,000
	Premium on Bonds Payable		$62,525

• Question #3

Date	General Journal	Debit	Credit
Jan-01	Cash	$38,000
	Bonds Payable		$38,000
Jun-30	Bond interest expense ($ 38000 x 8.5% x 6/12)	$1,615
	Bonds Payable		$1,615

• Question #4

Date	General Journal	Debit	Credit
Jan-01	Cash	$83,200
	Discount on Bonds Payable	$6,800
	Bonds Payable		$90,000
Jun-30	Bond interest expense	$6,080
	Discount on Bonds Payable ($6800 - 6120)		$680
	Cash ($90000 x 12% x 6/12)		$5,400
Dec-31	Bond interest expense	$6,080
	Discount on Bonds Payable ($6120 - 5440)		$680
	Cash ($90000 x 12% x 6/12)		$5,400