value: 1.60 points QS 10-6 Straight-Line: Bond computations LO P2 Enviro Company

Question

value: 1.60 points QS 10-6 Straight-Line: Bond computations LO P2 Enviro Company issues 8%, 1 0-year bonds with a par value of $150,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10%, which implies a selling price of 87 The straight-line method is used to allocate interest expense. 1. Using the implied selling price of 87 %, what are the issuer's cash proceeds from issuance of these 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 3. What is the amount of bond interest expense recorded on the first interest payment date? ond interest expense

Explanation / Answer

31-12-2014 Cash 151700 Discount on issue of bond 8300              Bonds payable 160000 30-06-2015 Interest expense 8830              Discount on issue of bond 830              Cash 8000 (160000*10%*6/12) 31-12-2015 Interest expense 8830              Discount on issue of bond 830              Cash 8000 (160000*10%*6/12)

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