Question

Enviro Company issues 11.00%, 10-year bonds with a par value of $310,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8.00%, which implies a selling price of 124 7/8. The straight-line method is used to allocate interest expense. 1. Using the implied selling price of 124 7/8. what are the issuer's cash proceeds from issuance of these bonds? Cash proceeds 387,113 2. What total amount of bond interest expense will be recognized over the life of these bonds? S Total Bond Interest Expense Over Life of Bonds: Amount repaid 20 payments of $ 18.700 Par value at maturity Total repayments Less amount borrowed (from part 1) Total bond interest expense 374 000 310.000 684.000 684.000

Answer 1

solution- (1) The issuer's cash proceeds from issuance of these bonds Maturity value of bondsy is = 310000 issue price is 124.875 1 . Amount received on issuance is 3100 x 120.875 . = 3871128553 The total amount of bond interest expense recognized over Wife of the bonds , (2) will be 20 payments of 12050 = 341000 per value of bonds Ġ 310000 Total amount repaid = 651000 (leget timant borrowed 32-387112-5 Total interest expanses = 263887.5

(3) The amount of bond interest expense On the first interest payment date? recorded i Cash Interest semi annual paid = 310000 x 117 x 6112 11050 . : (lent) premium amortized 38711225–310000) 3856 Interest expense or bonds on first interest date = 17050-3856 13194