Question

Garcia Company issues 10.50% , 15- 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 14.50 % , which implies a selling price of 75 1/2. The effective interest method is used to allocate interest expense. 1. Using the implied selling price of 75 1/2, what are the issuer's cash proceeds from issuance of these bonds. Cash proceeds 2. What total amount of bond interest expense will be recognized over the life of these bonds? Total Bond Interest Expense Over Life of Bonds: Amount repaid payments of Par value at matunty 0 Total repayments Less amount borrowed (from part 1) Total bond interest expense 0

Answer 1

- A B C D E F G cash proceeds $ 188,750 2 - am too. Ef total bond interest expense over life of bonds: amount repaid 30 payments of $ 13,125 $ 393,750 par value at maturity $ 250,000 total repayments $ 643,750 less: amount borrowed (from part 1) | $ 188,750 total bond interest expense $ 455,000 bond interest expense $ 13,684.38

for formulas and calculations, refer to the image below -

A B C D E F cash proceeds = 250000*75.5% HumanonooĈm 2 total bond interest expense over life of bonds: amount repaid =15*2 payments of =250000*10.5%/2 |=C6* E6 par value at maturity 250000 total repayments =F6+F7 less: amount borrowed (from part 1) =F2 total bond interest expense =F8-F9 bond interest expense =F2*14.5%/2

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