Question

Boyd Co. produces and sells aviation equipment. On the first day of its fiscal year, Boyd Co. issued $10,000,000 of four-year, 12% bonds at a market (effective) interest rate of 14%, with interest payable semiannually. Compute the following:

A)The amount of cash proceeds from the sale of the bonds. Use the tables of present values in Exhibit 5 and Exhibit 7. Round to the nearest dollar.

B)The amount of discount to be amortized for the first semiannual interest payment period, using the interest method. Round to the nearest dollar.

C)The amount of discount to be amortized for the second semiannual interest payment period, using the interest method. Round to the nearest dollar.

D)The amount of the bond interest expense for the first year. Round to the nearest dollar.

Answer 1

Solution A:

Computation of bond price
Table values are based on:
n=	8
i=	7.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.58201	$10,000,000.00	$5,820,100
Interest (Annuity)	5.97130	$600,000.00	$3,582,780
Price of bonds			$9,402,880

Solution b:

Journal Entries - Boyd Co.
Date	Particulars	Debit	Credit
30-Jun	Interest expense Dr ($9,402,880*14%*6/12)	$658,202.00
	To Discount on issue of bond		$58,202.00
	To Cash		$600,000.00
	(To record interest expense and discount amortization)

Solution C:

Journal Entries - Boyd Co.
Date	Particulars	Debit	Credit
31-Dec	Interest expense Dr [($9,402,880 + $58,202)*14%*6/12)	$662,276.00
	To Discount on issue of bond		$62,276.00
	To Cash		$600,000.00
	(To record interest expense and discount amortization)

Solution D:

Bond interest expense for first year = $658,202 + $662,276 = $1,320,478