Garcia Company issues 11.00%, 15-year bonds with a par value of $440,000 and sem

Question

Garcia Company issues 11.00%, 15-year bonds with a par value of $440,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 15.00%, which implies a selling price of 80 14. The effective interest method is used to allocate interest expense. 1. Using the implied selling price of 80 1/4, 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 3. What amount of bond interest expense is recorded on the first interest payment date? Bond interest expense

Explanation / Answer

1 Cash proceeds=440000*80.25%= $353100 2 Amount repaid: 30 payments of $24200 726000 Par value at maturity 440000 Total repayments 1166000 Less: Amount borrowed 353100 Total bond interest expense 812900 3 Bond interest expense=353100*15%/2= $26482.5 or $26483

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