Compute Bond Proceeds, Amortizing Discount by Interest Method, and Interest Expe

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 three-year, 11% bonds at a market (effective) interest rate of 13%, 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.
$

Explanation / Answer

11% 3 YEAR BOND OF $60,000,000 No of N=Bonds                  6,00,000 One Bond (assumed) 100 Semi Annual Interest Rate 5.50%                     5.50 Market rate semi annual 6.5% n period 6 getting interest 5.5 each six month Value of a bond=5.5*(PVIF,6.5%,6)+100*(PVIF,6.5%,6) Value of Bond=5.5*4.841014+100*.685334                         -   Total Value of bonds                      95.159 Issue Price                      95.159 no of Bonds            6,00,000.00 Total Issue Value            5,70,95,400 Total Face vluae of the Issue            6,00,00,000 Discount on Face value of the Bonds =60000000-57095400                29,04,600 Amortisation at each period of six month=2904600/6                  4,84,100 Bonds Initial Sales Price            5,70,95,400 Stated Interest Rate 11% Maturity in year 6 No of Payment per year 2 Market Interest Rate 13% a. The amount of cash proceeds from the sale of the bonds            5,70,95,400 b. Discount to be amortized for the first semiannual interest period,                  4,11,201 c. Discount to be amortized for the second semiannual interest period                  4,37,929 d.The amount of the bond interest expense for the first year                74,49,130

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