Question

qs 10-9 (algo) straight-line: discount bond computations lo p2
enviro company issues 8%, 10-year bonds with a par value of $220,000 and semiannual interest payments. on the issue date, the annual market rate for these bonds is 10%, which implies a selling price of 87 ½. the straight-line method is used to allocate interest expense.
complete this question by entering your answers in the tabs below.
required 1 required 2 required 3
what total amount of bond interest expense will be recognized over the life of these bonds?
note: round final answers to the nearest whole dollar amount.
total bond interest expense over life of bonds:
amount repaid
+ payments of
par value at maturity
total repayments 0
less amount borrowed (cash proceeds from part 1)
total bond interest expense $ 0

Explanation:

Step1: Calculate cash proceeds

First, find the cash received when issuing the bonds. The selling price is 87.5% of par value.
$\text{Cash proceeds} = \$220,000 \times 0.875 = \$192,500$

Step2: Calculate total interest payments

Semiannual interest rate = $\frac{8\%}{2} = 4\%$, number of payments = $10 \times 2 = 20$.
$\text{Total interest payments} = 20 \times (\$220,000 \times 0.04) = 20 \times \$8,800 = \$176,000$

Step3: Calculate total repayments

Add total interest payments and par value.
$\text{Total repayments} = \$176,000 + \$220,000 = \$396,000$

Step4: Calculate total bond interest expense

Subtract cash proceeds from total repayments.
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Answer:

Step1: Calculate cash proceeds

First, find the cash received when issuing the bonds. The selling price is 87.5% of par value.
$\text{Cash proceeds} = \$220,000 \times 0.875 = \$192,500$

Step2: Calculate total interest payments

Semiannual interest rate = $\frac{8\%}{2} = 4\%$, number of payments = $10 \times 2 = 20$.
$\text{Total interest payments} = 20 \times (\$220,000 \times 0.04) = 20 \times \$8,800 = \$176,000$

Step3: Calculate total repayments

Add total interest payments and par value.
$\text{Total repayments} = \$176,000 + \$220,000 = \$396,000$

Step4: Calculate total bond interest expense

Subtract cash proceeds from total repayments.
[SSE onError error]