Question

QS 10-7 Straight-Line: Discount bond computations LO P2 Enviro Company issues 8%, 10-year bonds with a par value of $250,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10%, which implies a selling price of 87 %. 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 Required Required 3 What total amount of bond interest expense will be recognized over the life of these bonds? Total Expense Over of Bonds: Amount read Pamat (Required 1 Required 3 > < Prev 5 of 17 Next >

Answer 1

Part-1

Computation of Cash Proceed from issue of Bond

= $250000X 87.5%=$218750

Part-2- Enviro Company- Bond
Total bond Interest Expense over life of bonds:
Amount Repaid:
20 Semi-Annual Interest Payment Of 10,000 (250,000*8%*6/12)	$200,000.00
Par Value Of Maturity	$250,000.00
Cash Ouflow	$450,000.00
Less: Cash Inflow ( Cash Proceed from issue of Bond)	$218,750.00
Total Bond Interest Expense	$231,250.00

Part-3: Computation of Amount of Bond Interest recorded on the First Interest Payment Date

=Total Bond Interest Expense/ Number of Payment

=$231250/20=$11562.50 or 11563