Garcia Company issues 10%, 15-year bonds with a par value of $150,000 and semian

Question

Garcia Company issues 10%, 15-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 8%, which implies a selling price of 117 V4. The effective interest method is used to allocate interest expense. 1. Using the implied selling price of 117 V4, 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

Explanation / Answer

1) Cash proceeds 175875 150,000*117.25% 175875 2) total Bond interest expense over life of bonds Amount repaid: 30 payments of 7500 225000 par value at maturity 150,000 total repayments 375000 less amount borrowed (from part 1) 175875 total bond interest expense. 199125 3) Bond interest expense 7035 (175875*4%)

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