Enviro Company issues 8%, 10-year bonds with a par value of $250,000 and semiann

Question

Enviro Company issues 8%, 10-year bonds with a par value of $250,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10%, which implies a selling price of 87 ½ The straight-line method is used to allocate interest expense. 1. Using the implied selling price of 87 12, what are the issuer's cash proceeds from issuance of these bonds. Cash proceeds 2. What total amount of bond interest expense will be recognized over the life of these bonds? Total bond interest expense over life of bonds: Amount repaid: payments of Par value at maturity Total repayments Less amount borrowed (from part 1) Total bond interest expense 0 0 3. What is the amount of bond interest expense recorded on the first interest payment date? Bond interest expense

Explanation / Answer

Req 1. Par value of bonds 250000 Number of bonds 2500 Issue price per bond 87.5 Cash proceeds of bonds 218750 Req 2. Total Bond Interest expense: Amount repid: 20 paymnts of $ 10000 200000 (250000*8%*6/12) Par value at maturity 250000 Total repayments 450000 Less: Amount borrowed 218750 Total Bond Interest expense: 231250 Req 3. Bond Interest expense: Cash interest paid (250000*8%*6/12) 10000 Add: Discount on bonds (250000-218750)/20 1562.5 Bond interest expense for first interest date 11562.5

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.