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 issued $85,000,000 of four-year, 8% bonds at a market (effective) interest rate of 11%, with interest payable semiannually. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

Open spreadsheet

Compute the following:

1. The amount of cash proceeds from the sale of the bonds. Round your answer to the nearest dollar.

   $  

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

   $  

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

   $  

4. The amount of the bond interest expense for the first year. Round your answer to the nearest dollar.

   $  

Answer 1

Sollution:-A)

Face Value of Bonds = $85,000,000

Annual Coupon Rate = 8.00%
Semiannual Coupon Rate = 4.00%
Semiannual Coupon = 4.00% * $85,000,000
Semiannual Coupon = $34,00,000

Annual Interest Rate = 11.00%
Semiannual Interest Rate = 5.5%

Time to Maturity = 4 years
Semiannual Period = 8

Issue Value of Bonds = $34,00,000 * PVA of $1 (5.5%,8) + $85,000,000 * PV of $1 (5.5%, 8)
Issue Value of Bonds = $34,00,000 * 6.333 + $85,000,000 *0.651
Issue Value of Bonds = $76,867,206

Note:-1)PVA of Total 8 semiannual periods is=6.333

2)PVA for 8th period is=0.651

3)1st year is 1x5.5%=0.055 then 1/1.055=0.948

2nd year is 0.948 / 1.055=0.898

3rd year is 0.898 / 1.055=0.851

Calculate like that then get all values.

Period	PVA(5.5%)
1	0.948
2	0.898
3	0.852
4	0.807
5	0.765
6	0.725
7	0.687
8	0.651
Total	6.333

Sollution:-B)

First Semiannual Interest Payment:

Interest Expense = 5.5% * $76,867,206
Interest Expense = $4,227,696

Interest Payment = $34,00,000

Discount Amortized = Interest Expense - Interest Payment
Discount Amortized = $4,227,696 - $$3,400,000
Discount Amortized = $827,696

Carrying Value = $76,867,206 +$827,696
Carrying Value = $77,694,902

Sollution:-C)

Second Semiannual Interest Payment:

Interest Expense = 5.5% * $77,694,902
Interest Expense = $4,273,320

Interest Payment =$34,00,000

Discount Amortized = Interest Expense - Interest Payment
Discount Amortized = $4,273,320 - $34,00,000
Discount Amortized = $873,320

Sollution:-D)

Interest Expense for First Year = $4,227,696 + $4,273,320
Interest Expense for First Year = $8,501,016