Compute Bond Proceeds, Amortizing Discount by Interest Method, and Interest Expense Boyd Co. produces and sells...

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Compute Bond Proceeds, Amortizing Discount by Interest Method, and Interest Expense Boyd Co. produces and sells aviation equi

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Answer 1

Answer #1

Answer a.

Face Value of Bonds = $30,000,000

Annual Coupon Rate = 12.00%
Semiannual Coupon Rate = 6.00%
Semiannual Coupon = 6.00% * $30,000,000
Semiannual Coupon = $1,800,000

Annual Interest Rate = 14.00%
Semiannual Interest Rate = 7.00%

Time to Maturity = 5 years
Semiannual Period = 10

Issue Value of Bonds = $1,800,000 * PVA of $1 (7.00%, 10) + $30,000,000 * PV of $1 (7.00%, 10)
Issue Value of Bonds = $1,800,000 * 7.02358 + $30,000,000 * 0.50835
Issue Value of Bonds = $27,892,944

Answer b.

First Semiannual Interest Payment:

Interest Expense = 7.00% * $27,892,944
Interest Expense = $1,952,506

Interest Payment = $1,800,000

Discount Amortized = Interest Expense - Interest Payment
Discount Amortized = $1,952,506 - $1,800,000
Discount Amortized = $152,506

Carrying Value = $27,892,944 + $152,506
Carrying Value = $28,045,450

Answer c.

Second Semiannual Interest Payment:

Interest Expense = 7.00% * $28,045,450
Interest Expense = $1,963,182

Interest Payment = $1,800,000

Discount Amortized = Interest Expense - Interest Payment
Discount Amortized = $1,963,182 - $1,800,000
Discount Amortized = $163,182

Answer d.

Interest Expense for First Year = $1,952,506 + $1,963,182
Interest Expense for First Year = $3,915,688

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Answer 2

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