Question

Check my work Enviro Company issues 8%, 10-year bonds with a par value of $210.000 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 2. 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 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 maturity Total repayments < Prev 24 of 27 1 Next >

Answer 1

Please find below table useful to compute desired results: -

D B Particulars Given Interest on bonds =8/100 Life of bonds 10 Par Value 210000 Market Rate =10/100 Selling price =87.5/100 8 Cash Proceeds =C4*C6 Total Bond Interest Expense over life of bonds: Amount Repaid 12 =C3*2 Payments of =C4*C2/2 =A12*C12 Par Value at maturity =C4 14 Total repayments =D12+D13 15 Less: Amount Borrowed =B8 16 Total bond interest Expense 1=D14-D15 17 18 Discount Amortization =(C4-B8) A12 19 Bond Interest Expense =C12+C18

End results would be as follows: -

D B C Particulars Given Interest on bonds 8.00% Life of bonds 10 Par Value 210,000 Market Rate 10.00% Selling price 87.50% Cash Proceeds 183,750 Total Bond Interest Expense over life of bonds: Amount Repaid 20 Payments of 8,400 168,000 Par Value at maturity 210,000 14 Total repayments 378,000 15 Less: Amount Borrowed 183,750 16 Total bond interest Expense 194,250 17 18 Discount Amortization 1,313 19 Bond Interest Expense 9,713