Question

Boyd Co. produces and sells aviation equipment. On the first day of its fiscal year, Boyd Co. issued $70,000,000 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.
$

Answer 1

Solution a:

Computation of bond price
Table values are based on:
n=	6
i=	6.50%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.68533	$70,000,000.00	$47,973,100
Interest (Annuity)	4.84101	$3,850,000.00	$18,637,889
Price of bonds			$66,610,989

Solution b & c:

Bond Amortization Schedule - Effective interest method
Semiannual period	Cash Paid	Interest Expense	Discount Amortized	Unamortized Discount	Carrying Value
Issue Date				$3,389,011	$66,610,989
1	$3,850,000	$4,329,714	$479,714	$2,909,297	$67,090,703
2	$3,850,000	$4,360,896	$510,896	$2,398,401	$67,601,599

The amount of discount to be amortized for the first semiannual interest payment period = $479,714

The amount of discount to be amortized for the second semiannual interest payment period = $510,896

Solution d:

bond interest expense for the first year = $4,329,714 +  $4,360,896 = $8,690,610