Question

meducation.com/how connecting !!! Apps Academic Transcript Enviro Company issues B%, 10 year bonds with a par value of $160,000 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 What total amount of bond interest expense will be recognized over the life of these bonds? Total Bonderest Expense Over Lite of Bonds: Para matty Total payments Les amount borrowed from port) 1000 (Required 1 Required 3 > < Prey 24 of 27 E! Next > ape here to search 0 Remo

Answer 1

Requirement 1:

Cash proceeds = Par value x 0.875

= $160,000 x 0.875

= $140,000

Requirement 2:

Total Bond Interest Expense Over Life of Bonds:
Amount repaid:
20 Payments of $6,400	$128,000
Par value at maturity	$160,000
Total repayments	$288,000
Less: Amount borrowed (from part 1)	$140,000
Total bond interest expense	$148,000

Calculations:

Total payments = 10 years x 2 payments per year = 20 payments

Payment = Par value x Interest rate

= $160,000 x 8% x 6/12

= $12,800 x 6/12

= $6,400

Requirement 3:

Cash paid	$6,400
Add: Discount amortized	$1,000
Interest expense	$7,400

Calculations:

Par value of the bonds	$160,000
Less: Amount received	$140,000
Total Discount	$20,000
÷ No. of payments	20
= Discount amortized	$1,000