Question

Compute Bond Proceeds, Amortizing Discount by Interest Method, and Interest Expense Boyd Co. produces and sells aviation equipment. On the first day of its fiscal year, Boyd Co. issued $60,000,000 of five-year, 10% bonds at a market (effective) interest rate of 12%, 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=	10
i=	6.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.55839	$60,000,000.00	$33,503,400
Interest (Annuity)	7.36009	$3,000,000.00	$22,080,270
Price of bonds			$55,583,670

Solution b&c:

Bond Amortization Schedule (Partial)
Semiannual period	Cash Paid	Interest Expense	Discount Amortized	Unamortized Discount	Carrying Value
Issue date				$4,416,330	$55,583,670
1	$3,000,000	$3,335,020	$335,020	$4,081,310	$55,918,690
2	$3,000,000	$3,355,121	$355,121	$3,726,188	$56,273,812

Amount of discount to be amortized for the first semiannual interest payment period = $335,020

Amount of discount to be amortized for the second semiannual interest payment period = $355,121

Solution d:

Bond interest expense for the first year = $3,335,020 + $3,355,121 = $6,690,141