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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Ware Co. produces and sells motorcycle parts. On the first day of its fiscal year, Ware Co. issued $35,000,000 of five-year, 12% bonds at a market (effective) interest rate of 10%, 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 premium to be amortized for the first semiannual interest payment period, using the interest method. Round to the nearest dollar.
c. The amount of premium 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

Computation of Semi-annual Interest on bonds and Lumpsum Payment

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Interest = Face value x Face interest rate x Interest time period = $35, 000, 000 x 12% × = $2, 100, 000 12 Amount Particulars Interest payment (a) $2,100,000 PV factor at semiannual market interest rate of 5% for 10 periods (b) 7.72173 Present value (a)×(b) $16,215,633 Particulars Amount Single payment (a) $35,000,000 PV factor at semiannual market interest rate of 5% for 10 periods (b) 0.61391 Present value (a)×(b) $21,486,850

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Step 2

Calculation of Cash Proceeds from sale of bond

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Cash Proceeds = PV of Interest + PV of lumpsum = 16215633 + 21486850 = $37,702,483

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Step 3

Computation of Premium to be amortized for ...

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Face valuex Stated interest rate Cash Paid (Interest Payment) =(XInterest time period 6. 12 = $35, 000, 000 × 12% × = $2, 100, 000 Interest expense = Carrying amount x Market interest x Time = $37, 702, 483 × 10% × 12 = $1, 885, 124 Premium amortized = Cash paid – Interest Expense = $2, 100, 000– $1,885, 124 = $214, 876

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