Garcia Company issues 10%, 15-year bonds with a par value of $170,000 and semian

Question

Garcia Company issues 10%, 15-year bonds with a par value of $170,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8%, which implies a selling price of 117 1?4. The effective interest method is used to allocate interest expense.
     
1. Using the implied selling price of 117 1?4, 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 amount of bond interest expense is recorded on the first interest payment date?
Bond interest expense: ????

Cash proceeds

Explanation / Answer

Question - 1

Cash proceeds = 170000 * 117.25% = 199,325

The selling price of 117.25 implies, bonds are selling at premium. Hence cash proceeds shall be more than face value of the bond.

Question - 2

Bond Interest expenses recorded on the first interest payment date = 199325 * 0.04 = $ 7973

30 Payments of 8500 each 255000 Par value at Maturity 170000 Total repaid 425000 Less Amount borrowed 199325 Total bond Interest expense 225,675

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

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