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Garcia Company issues 10%, 15-year bonds with a par value of $240,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 14%, which implies a selling price of 75 %. The effective interest method is used to allocate interest expense. Contract rate Term (years) Par value Market rate Selling price Payments per year Cash proceeds 10% 15 Required: 1. What are the issuer's cash proceeds from issuance of these bonds using the implied selling price? $240,000 14% 75.25% 2 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 Bond interest expense 3. What amount of bond interest expense is recorded on the first interest payment date?

Garcia Company issues 10%, 15-year bonds with a par value of $240,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 14%, which implies a selling price of 75 %. The effective interest method is used to allocate interest expense. Contract rate Term (years) Par value Market rate Selling price Payments per year Cash proceeds 10% 15 Required: 1. What are the issuer's cash proceeds from issuance of these bonds using the implied selling price? $240,000 14% 75.25% 2 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 Bond interest expense 3. What amount of bond interest expense is recorded on the first interest payment date?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Garcia Company issues 10%, 15-year bonds with a par value of $240,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 14%, which implies a selling price of 75 %. The effective interest method is used to allocate interest expense. Contract rate Term (years) Par value Market rate Selling price Payments per year 10% 15 $240,000 14% 75.25% Required: 1. What are the issuer's cash proceeds from issuance of these bonds using the implied selling price? 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 Bond interest expense 2 3. What amount of bond interest expense is recorded on the first interest payment date?
Transcribed Image Text:Garcia Company issues 10%, 15-year bonds with a par value of $240,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 14%, which implies a selling price of 75 %. The effective interest method is used to allocate interest expense. Contract rate Term (years) Par value Market rate Selling price Payments per year 10% 15 $240,000 14% 75.25% Required: 1. What are the issuer's cash proceeds from issuance of these bonds using the implied selling price? 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 Bond interest expense 2 3. What amount of bond interest expense is recorded on the first interest payment date?
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