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 751⁄4. The effective interest method is used to allocate interest expense. 1. 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 amount of bond interest expense is recorded on the first interest payment date?

Question

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
751⁄4. The effective interest method is used to allocate interest expense.
1. 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 amount of bond interest expense is recorded on the first interest payment date?

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