Boyd Co. produces and sells aviation equipment. On the first day of its fiscal year, Boyd Co. issued

Boyd Co. produces and sells aviation equipment. On the first day of its fiscal year, Boyd Co. issued $80,000,000 of five-year, 9% bonds at a market (effective) interest rate of 12%, with interest payable semiannually. Compute the following, presenting figures used in your computations.


a. The amount of cash proceeds from the sale of the bonds. Use the tables of present values in Exhibits 4 and 5. Round to the nearest dollar.

b. The amount of discount to be amortized for the first semiannual interest payment period, using the interest method. Round to the nearest dollar.

c. The amount of discount to be amortized for the second semiannual interest payment period, using the interest method. Round to the nearest dollar.

d. The amount of the bond interest expense for the first year.


Answer:

a. Present value of $1 for 10 semiannual
periods at 6.0% semiannual rate…………………………… 0.55839
Face amount of bonds…………………………………………… ×
Present value of an annuity of $1 for 10 semiannual
$80,000,000 $44,671,200
periods at 6.0% semiannual rate…………………………… 7.36009
Semiannual interest payment………………………………… × $ 3,600,000* 26,496,324
Proceeds of bond sale…………………………………………… $71,167,524
* $80,000,000 × 4.5%
b. 6.0% of carrying amount of $71,167,524…………………… $ 4,270,051
First semiannual interest payment…………………………… 3,600,000
Discount amortized……………………………………………… $ 670,051
c. 6.0% of carrying amount of $71,837,575*…………………… $ 4,310,255
Second semiannual interest payment………………………… 3,600,000
Discount amortized……………………………………………… $ 710,255
* $71,167,524 + $670,051
d. Annual interest paid…………………………………………… $ 7,200,000
Plus discount amortized*……………………………………… 1,380,306
Interest expense for first year………………………………… $ 8,580,306
* $670,051 + $710,255