Drive-Ins borrowed money by issuing $6,000,000 of 5% bonds payable at 94.5. Interest is paid semiannually....
Drive-Ins borrowed money by issuing $6,000,000 of 5% bonds payable at 94.5. Interest is paid semiannually. Requirements
|
1. |
How much cash did Superior receive when it issued the bonds payable? |
|
2. |
How much must Superior pay back at maturity? |
|
3. |
How much cash interest will Superior pay each six months? |
Homework Answers
1. $6,000,000 of 5% bonds payable at 94.5 means face value of bonds = $6,000,000, coupon interest = 5% and bonds are issued at discount @94.5 per bond against face value 100 per bond.
So, cash received from bonds issue will be = $6,000,000 * 94.5%
= 5,670,000
2. At the time of maturity, the face value has to be paid, So, $6,000,000 will be paid.
3. Coupon interest rate on bonds is quoted annually and calculated on face value of bonds, irrespective of whether it is issued at premium or discount.
So, Annual interest = $6,000,000 * 5%
= $300,000
Semi-annual interest = 300,000 / 2 = $150,000
or semi-annual interest can be directly calculated as $6,000,000 * 5%/2
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