Question

QS 10-9 Straight-Line: Premium bond computations LO P3 Enviro Company issues 12.50%, 10-year bonds with a par value of $470,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 9.50%, which implies a selling price of 128.875. The straight-line method is used to allocate interest expense. 1. Using the implied selling price of 128.875. 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 128.875. what are the issuer's cash proceeds from issuance of these bonds? Cash proceeds

Answer 1

1)	issue price
	470,000*128.875%
	605713
2)	Amount repaid
	20	payments of		29375	587500
		par value at maturity			470,000
		total repayments			1057500
		less amount borrowed in part 1			605,713
		total bond interest expense			451,788
3)	bond interest expense
	premium on bonds amortized			(605713-470000)/20=		6785.6250
	interest expense = 29,375-6785.6250
			22589