Question

# Enviro Company issues 11.00%, 10-year bonds with a par value of \$310,000 and semiannual interest payments....

Enviro Company issues 11.00%, 10-year bonds with a par value of \$310,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8.00%, which implies a selling price of 124 7/8. The straight-line method is used to allocate interest expense.

1. Using the implied selling price of 124 7/8. 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 is the amount of bond interest expense recorded on the first interest payment date?

 Rreq 1. Maturity value of bonds 310000 Issue price 124.875 Amount received on issuance 387112.5 (3100*124.875) Req 2. 20 payments of 17050 each 341000 par value of bonds 310000 Total amount repaid 651000 Less: Amount borrowed 387112.5 Total Interest expenses 263887.5 Req 3. Cash Interest Semi annual paid (310000*11%*6/12) 17050 Less: Premium amortized 3856 (387112.5-310000)/20 Interest expense on bonds on first interest date 13194

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