1.)

Accounting or Bonds Sold at a Discount

The Biltmore National Bank raised capital through the sale of $130 million face value of eight percent coupon rate, ten-year bonds. The bonds paid interest semiannually and were sold at a time when equivalent risk-rated bonds carried a yield rate of ten percent.

Round all answers to the nearest whole number.

a. Calculate the proceeds that The Biltmore National Bank received from the sale of the eight percent bonds. $Answer

b. Calculate the interest expense on the bonds for the first year that the bonds are outstanding. $Answer

c. Calculate the book value of the bonds at the end of the first year. $Answer

2.)

Account for Bonds Sold at a Premium

The Longo Corporation issued $40 million maturity value of six percent coupon rate bonds, with interest paid semiannually. At the time of the bond issuance, equivalent risk-related debt instruments carried a yield rate of four percent. The bonds matured in five years.

Round all answers to the nearest whole number.

a. Calculate the proceeds that the Longo Corporation would receive form the sale of the bonds. $Answer

b. Calculate the interest expense on the bonds for the first year. $Answer

c. Calculate the book value of the bonds at the end of the first year. $Answer