Question

QS 10-18B Effective Interest: Bond premium computations LO PO Garcia Company issues 10%, 15-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 8%, which implies a selling price of 117 14. The effective interest method is used to allocate interest expense. 1. Using the implied selling price of 117 14, 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 amount of bond interest expense is 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 117 1/4, what are the issuer's cash proceeds from issuance of these bonds? Cash proceeds < Required 1 Required 2 >

Answer 1

1)
	Cash proceeds			304850
	260,000*117.25%
	304850
2)	total Bond interest expense over life of bonds
	Amount repaid:
	30	payments of		13000	390000
		par value at maturity			260,000
	total repayments				650000
	less amount borrowed (from part 1)				304850
	total bond interest expense.				345150
3)	Bond interest expense				12194
	(304850*4%)