Periods52%4%42%5%6%7%10%11%12%13%0.961540.956940.947870.943400.938970.934580.909090.892860.952380.900900.884960.915730.907030.890000.881660.924560.898450.873440.826450.811620.797190.7831530.889000.876300.863840.851610.839620.827850.816300.751310.731190.711780.693050.807220.683010.854800.838560.822700.792090.777320.762900.658730.635520.613320.783530.765130.712990.542760.821930.802450.747260.729880.620920.593450.567430.790310.746220.725250.685330.666340.506630.767900.704960.564470.534640.480320.759920.734830.710680.687440.665060.643510.622750.513160.481660.452350.425060.651600.604230.582010.4038880.730690.703190.676840.627410.466510.433930.376160.360610.702590.644610.591900.543930.672900.617630.567350.424100.390920.332880.64393100.675560.613910.585430.558390.532730.508350.385540.352180.321970.29459 Periods4%42%5½%6%7%10%11%12%13%0.943400.961540.956940.952380.947870.938970.934580.909090.900900.892860.884961.820631.735541.690051.886091.872671.859411.846321.833391.808021.712521.668102.7232532.775092.748962.697932.673012.648482.624322.486852.443712.401832.361153.629903.505152.9744743.587533.545953.465113.425803.387213.169873.102453.037354.389984.451824.329484.270284.212364.155684.100203.790793.695903.604783.517235.157875.075695.242144.995534.917324.841014.766544.355264.230544.111413.997556.002055.892705.786375.682975.582385.484525.389294.868424.712204.563764.422616.732746.595896.463216.334576.209796.088755.971305.334935.146124.967644.796776.515239.7.435337.268797.107826.952206.801696.656105.759025.537055.328255.131667.912727.537637.188837.02358108.110907.721737.360096.144575.889235.650225.42624

Question
Asked Dec 20, 2019
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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 8 and 10. 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.

Exhibits 8 and 10 attached

Periods
52%
4%
42%
5%
6%
7%
10%
11%
12%
13%
0.96154
0.95694
0.94787
0.94340
0.93897
0.93458
0.90909
0.89286
0.95238
0.90090
0.88496
0.91573
0.90703
0.89000
0.88166
0.92456
0.89845
0.87344
0.82645
0.81162
0.79719
0.78315
3
0.88900
0.87630
0.86384
0.85161
0.83962
0.82785
0.81630
0.75131
0.73119
0.71178
0.69305
0.80722
0.68301
0.85480
0.83856
0.82270
0.79209
0.77732
0.76290
0.65873
0.63552
0.61332
0.78353
0.76513
0.71299
0.54276
0.82193
0.80245
0.74726
0.72988
0.62092
0.59345
0.56743
0.79031
0.74622
0.72525
0.68533
0.66634
0.50663
0.76790
0.70496
0.56447
0.53464
0.48032
0.75992
0.73483
0.71068
0.68744
0.66506
0.64351
0.62275
0.51316
0.48166
0.45235
0.42506
0.65160
0.60423
0.58201
0.40388
8
0.73069
0.70319
0.67684
0.62741
0.46651
0.43393
0.37616
0.36061
0.70259
0.64461
0.59190
0.54393
0.67290
0.61763
0.56735
0.42410
0.39092
0.33288
0.64393
10
0.67556
0.61391
0.58543
0.55839
0.53273
0.50835
0.38554
0.35218
0.32197
0.29459
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Periods 52% 4% 42% 5% 6% 7% 10% 11% 12% 13% 0.96154 0.95694 0.94787 0.94340 0.93897 0.93458 0.90909 0.89286 0.95238 0.90090 0.88496 0.91573 0.90703 0.89000 0.88166 0.92456 0.89845 0.87344 0.82645 0.81162 0.79719 0.78315 3 0.88900 0.87630 0.86384 0.85161 0.83962 0.82785 0.81630 0.75131 0.73119 0.71178 0.69305 0.80722 0.68301 0.85480 0.83856 0.82270 0.79209 0.77732 0.76290 0.65873 0.63552 0.61332 0.78353 0.76513 0.71299 0.54276 0.82193 0.80245 0.74726 0.72988 0.62092 0.59345 0.56743 0.79031 0.74622 0.72525 0.68533 0.66634 0.50663 0.76790 0.70496 0.56447 0.53464 0.48032 0.75992 0.73483 0.71068 0.68744 0.66506 0.64351 0.62275 0.51316 0.48166 0.45235 0.42506 0.65160 0.60423 0.58201 0.40388 8 0.73069 0.70319 0.67684 0.62741 0.46651 0.43393 0.37616 0.36061 0.70259 0.64461 0.59190 0.54393 0.67290 0.61763 0.56735 0.42410 0.39092 0.33288 0.64393 10 0.67556 0.61391 0.58543 0.55839 0.53273 0.50835 0.38554 0.35218 0.32197 0.29459

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Periods
4%
42%
5½%
6%
7%
10%
11%
12%
13%
0.94340
0.96154
0.95694
0.95238
0.94787
0.93897
0.93458
0.90909
0.90090
0.89286
0.88496
1.82063
1.73554
1.69005
1.88609
1.87267
1.85941
1.84632
1.83339
1.80802
1.71252
1.66810
2.72325
3
2.77509
2.74896
2.69793
2.67301
2.64848
2.62432
2.48685
2.44371
2.40183
2.36115
3.62990
3.50515
2.97447
4
3.58753
3.54595
3.46511
3.42580
3.38721
3.16987
3.10245
3.03735
4.38998
4.45182
4.32948
4.27028
4.21236
4.15568
4.10020
3.79079
3.69590
3.60478
3.51723
5.15787
5.07569
5.24214
4.99553
4.91732
4.84101
4.76654
4.35526
4.23054
4.11141
3.99755
6.00205
5.89270
5.78637
5.68297
5.58238
5.48452
5.38929
4.86842
4.71220
4.56376
4.42261
6.73274
6.59589
6.46321
6.33457
6.20979
6.08875
5.97130
5.33493
5.14612
4.96764
4.79677
6.51523
9.
7.43533
7.26879
7.10782
6.95220
6.80169
6.65610
5.75902
5.53705
5.32825
5.13166
7.91272
7.53763
7.18883
7.02358
10
8.11090
7.72173
7.36009
6.14457
5.88923
5.65022
5.42624
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Periods 4% 42% 5½% 6% 7% 10% 11% 12% 13% 0.94340 0.96154 0.95694 0.95238 0.94787 0.93897 0.93458 0.90909 0.90090 0.89286 0.88496 1.82063 1.73554 1.69005 1.88609 1.87267 1.85941 1.84632 1.83339 1.80802 1.71252 1.66810 2.72325 3 2.77509 2.74896 2.69793 2.67301 2.64848 2.62432 2.48685 2.44371 2.40183 2.36115 3.62990 3.50515 2.97447 4 3.58753 3.54595 3.46511 3.42580 3.38721 3.16987 3.10245 3.03735 4.38998 4.45182 4.32948 4.27028 4.21236 4.15568 4.10020 3.79079 3.69590 3.60478 3.51723 5.15787 5.07569 5.24214 4.99553 4.91732 4.84101 4.76654 4.35526 4.23054 4.11141 3.99755 6.00205 5.89270 5.78637 5.68297 5.58238 5.48452 5.38929 4.86842 4.71220 4.56376 4.42261 6.73274 6.59589 6.46321 6.33457 6.20979 6.08875 5.97130 5.33493 5.14612 4.96764 4.79677 6.51523 9. 7.43533 7.26879 7.10782 6.95220 6.80169 6.65610 5.75902 5.53705 5.32825 5.13166 7.91272 7.53763 7.18883 7.02358 10 8.11090 7.72173 7.36009 6.14457 5.88923 5.65022 5.42624

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Expert Answer

Step 1

a.

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Step 1: Calculate the semiannual interest on bonds. Interest = Face value x Face Interest rate x Interest time perlod = $80, 000, 000 x 9% × = $3, 600, 000 Step 2: Calculate the present value of interest. Particulars Amount $3,600,000 Interest payment (a) PV factor at semiannual market interest rate of 696 for 10 periods (b) Present value (a) × (b) 7.36009 $26,496,324 Note: The present value factor for 10 periods at 69% interest would be 7.36009 (Refer Exhibit 10 in the chapter for present value factor). Step 3: Calculate the present value of lump sum payment of $80,000,000 (principal amount) at 6% for 10 periods. Particulars Amount Single payment (a) s80,000,000 PV factor at semiannual market interest rate of 6% for 10 periods (b) Present value (a) × (b) 0.55839 $44,671,200

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Step 2
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Step 4: Calculate the amount of cash proceeds from the sale of the bonds. Cash proceeds from sale of bonds Present value of interest payment + Present value of Lump sum payment $26,496,324 (from table 1) +$44,671,200 (from table 2). = $71,167,524

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Step 3

b.

...
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Step 1: Calculate cash paid (interest payment). Cash Paid (Interest Payment) = xInterest time perlod Face valuex Stated interest rate = $80, 000, 000 x 9% × = $3, 600, 000 Step 2: Calculate interest expense. Interest expense = Carrying amount x Market interest x Time = $71, 167, 524 × 12% × = $4, 270, 051 Step 3: Calculate discount amortized. Discount amortized = Interest Expense-Cash paid = $4, 270, 051– $3, 600, 000 = $670, 051

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