Question

Account for Bonds Sold at a Premium The Longo Corporation issued $10 million maturity value of six percent coupon rate bonds, with intere paid semiannually. At the time of the bond issuance, equivalent risk-related debt instruments carried a yield rate of four percent. The bonds matured in five years. Round all answers to the nearest whole number. a. Calculate the proceeds that the Longo Corporation would receive form the sale of the bonds. $ 10,898,277 b. Calculate the interest expense on the bonds for the first year. $ 10,816,243 X C. Calculate the book value of the bonds at the end of the first year. $ 10,732,567

Answer 1

Requirement b solution

Interest expense for the first year = $434,290

Working

Amortization table
	Period	Cash payment	Interest expense	Discount on Bonds payable	Carrying Value of Bond
	Issue			-$ 898,277	$ 10,898,277
	1st payment	$ 300,000	$ 217,966	-$ 82,034	$ 10,816,243
	2nd Payment	$ 300,000	$ 216,325	-$ 83,675	$ 10,732,567
	Total		$ 434,290