Sond G. pr duces a d sells aviation equipment. On the frst day of ts fisal year,

Question

Sond G. pr duces a d sells aviation equipment. On the frst day of ts fisal year, Boyd G. issued $20,000,000 of three-year, 10% bonds at a market effective interest rate of 12% with interest payable emiannualy. 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 dolar. e. 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 dolar date and the periodic interest to be paid on the bonds. Remember, the seling price of a bond is the sum of the present values of: the face amount of the bonds due at the maturity The market rate of interest is used to compute the present value of both the face amount and the periodic interest As the discount or premium i s amortized, the carrying amount of the bond changes, As a result, interest expense also changes each period Previous Next

Explanation / Answer

Table Value Based on n= 6 (3 Years X 2 ) i= 6.00% (12% / 2) Cash Flow Amount Present Value Interest - $20,000,000 X 10% X 6/12                1,000,000                           4,917,324.00 ($1,000,000 X 4.917324) Principal              20,000,000                        14,099,220.00 ($20,000,000 X 0.704961) Issue Price of Bonds                        19,016,544.00 Discount on issue of Bonds                              983,456.00 Bond Discount Amortization Schedule Date Interest Paid - $20,000,000 X 10% X 6/12 Interest Expense - Preceeding Bond Carrying Value X 12% X 6/12 Discount Amortization Unamortized Discount Bonds Carrying Amount A B C = B-A D = D - C E = $20,000,000 - D 0                                   -                                         -                                        -                             983,456                19,016,544 1                   1,000,000                        1,140,993                           140,993                           842,463                19,157,537 2                   1,000,000                        1,149,452                           149,452                           693,011                19,306,989 3                   1,000,000                        1,158,419                           158,419                           534,592                19,465,408 4                   1,000,000                        1,167,924                           167,924                           366,667                19,633,333 5                   1,000,000                        1,178,000                           178,000                           188,667                19,811,333 6                   1,000,000                        1,188,667                           188,667                                        0                20,000,000 Answer a. Cash Proceeds rom issue of Bonds        19,016,544.00 Answer b. Amt. of Discount Amortized - 1st Interest Payment                    140,993 Answer c. Amt. of Discount Amortized - 2nd Interest Payment                    149,452 Answer d. Bond Interest Expense for 1st Year                2,290,445

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