Question
In: Accounting
Enviro Company issues 8%, 10-year bonds with a par value of $310,000 and semiannual interest payments....
Enviro Company issues 8%, 10-year bonds with a par value of $310,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10%, which implies a selling price of 87 1⁄2. The straight-line method is used to allocate interest expense. 1. Using the implied selling price of 87 ½, what are the issuer's cash proceeds from issuance of these bonds? 2. What total amount of bond interest expense will be recognized over the life of these bonds? 3. What is the amount of bond interest expense recorded on the first interest payment date?
Solutions
Expert Solution
1. Issuer's cash proceeds from issuance of these bonds = Face Value * Selling Price / 100
Issuer's cash proceeds from issuance of these bonds = 310000 * 87.50 / 100
Issuer's cash proceeds from issuance of these bonds = $271250
2. Total amount of bond interest expense will be recognized over the life of these bonds
Total amount of bond interest expense will be recognized = Discount on Bond + Interest on Bond
Total amount of bond interest expense will be recognized = 310000 * 12.5 / 100 + 310000 * 8% * 10
Total amount of bond interest expense will be recognized = 37850 + 248000
Total amount of bond interest expense will be recognized = $286750
3. The amount of bond interest expense recorded on the first interest payment date
The amount of bond interest expense = Discount of Bond / 20 + Interest
The amount of bond interest expense = 37850 / 20 + 310000 * 8% * 1 /2
The amount of bond interest expense = 1937.5 + 12400
The amount of bond interest expense = $14337.50
ekkarill92 answered 2 years agoRelated Solutions
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Enviro Company issues 10%, 10-year bonds with a par value of
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n=
i=
Present Value of an
Annuity
Present value
of $1
5
8
%
3.9927
0.6806
10
4
%
8.1109
0.6756
5
6
%
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0.7473
10
3
%
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The following information is used to answer
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Semiannual Interest Payments
Three-Year Life
Annual Contract Rate: 12%
Annual Market Rate: 10%
Question:
What is the semi-annual cash payment to the
bondholder?
A. $150,000
B. $160,000
C. $170,000
D. $180,000
What is the total amount of interest expense over the
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A. $927,729.24
B. $945,756.32
C. $955,798.51
D. $963,877.98
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answer:
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Semiannual Interest Payments,
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Annual Market Rate: 8%
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answer:
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Semiannual Interest Payments,
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Compute the selling price of 10%, 10-year bonds with a par value of $360,000 and semiannual...
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