the Garca Company isses 10.50% 15-year bonds with a par vain of S250 00 and se i
ID: 2556917 • Letter: T
Question
the Garca Company isses 10.50% 15-year bonds with a par vain of S250 00 and se ianual interest per ents on te issuedate, annual market rate for tesobords is 1450%, which implies a solng poe of 75 1/2 The etetive interest method is used toalocae interest expense 1. Using the implied selling price of 75 1/2, what are the issuer's cash proceeds from Issuance of these 2. What total amount of bond interest expense will be recognized over the Ife of these bonds? Amount repaid of Par value maturity Less amount bormowed (from part 1 Total bond interest experse What amount of bond interest expense is recorded on the first interest payment date? Hints Leaming Objective 10-PS Appendix 108-Compute and Worksheet Dešauty 2 Medium amortization of a bond disoount usingo the elective nterest method 3/27/2018, 8:54 PMExplanation / Answer
Solution 1:
Selling price of bond = 75.50
Cash Proceed from issue of bonds = $250,000*75.50% = $188,750
Solution 2:
Total cash interest to be paid over life of bonds = $250,000*10.50%*6/12*30 = $393,750
Par value at maturity = $250,000
Total repayments = $393,750 + $250,000 = $643,750
Amount borrowed = $188,750
Total bond interest expense = $643,750 - $188,750 = $455,000
Solution 3:
Amount of interest expense to be recorded on first interest payment date = $188,750 * 14.50%*6/12 = $13,684.38
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