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?
|Maturity value of bonds||310000|
|Amount received on issuance||387112.5|
|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|
|Cash Interest Semi annual paid (310000*11%*6/12)||17050|
|Less: Premium amortized||3856|
|Interest expense on bonds on first interest date||13194|
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