Compute Bond Proceeds, Amortizing Discount by Interest Method, and Interest Expense

Boyd Co. produces and sells aviation equipment. On the first day of its fiscal year, Boyd Co. issued $40,000,000 of four-year, 10% bonds at a market (effective) interest rate of 12%, with interest payable semiannually. Compute the following:

Compute Bond Proceeds, Amortizing Discount by Interest Method, and Interest Expense Boyd Co. produces and sells aviation equipment. On the first day of its fiscal year, Boyd Co. issued $40,000,000 of four-year, 10% bonds at a market (effective) interest rate of 12%, with interest payable semiannually. Compute the following: a. The amount of cash proceeds from the sale of the bonds. Use the tables of present values in Exhibit 5 and Exhibit 7. 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. Round to the nearest dollar. Feedback Check My Work Remember, the selling price of a bond is the sum of the present values of: the face amount of the bonds due at the maturity date and the periodic interest to be paid on the bonds. The market rate of interest is used to compute the present value of both the face amount and the periodic interest. As the discount or premium is amortized, the carrying amount of the bond changes. As a result, interest expense also changes each period. 7% 1 Present Value of $1 at Compound Interest Due Inn Periods Periods 4.0% 4.5% 5% 5.5% 0.96154 0.95694 0.95238 0.94787 2 0.92456 0.91573 0.90703 0.89845 3 0.88900 0.87630 0.86384 0.85161 4 0.85480 0.83856 0.82270 0.80722 0.82193 0.80245 0.78353 0.76513 6% 0.94340 0.89000 0.83962 0.79209 0.74726 6.5% 0.93897 0.88166 0.82785 0.77732 0.72988 0.93458 0.87344 0.81630 0.76290 0.71299 5 6 7 8 9 0.79031 0.75992 0.73069 0.70259 0.67556 0.76790 0.73483 0.70319 0.67290 0.64393 0.74622 0.71068 0.67684 0.64461 0.61391 0.72525 0.68744 0.65160 0.61763 0.58543 0.70496 0.66506 0.62741 0.59190 0.55839 0.68533 0.64351 0.60423 0.56735 0.53273 0.66634 0.62275 0.58201 0.54393 0.50835 10 0.58468 11 12 13 14 15 0.64958 0.62460 0.60057 0.57748 0.55526 0.61620 0.58966 0.56427 0.53997 0.51672 0.55684 0.53032 0.50507 0.48102 0.55491 0.52598 0.49856 0.47257 0.44793 0.52679 0.49697 0.46884 0.44230 0.41727 0.50021 0.46968 0.44102 0.41410 0.38883 0.47509 0.44401 0.41496 0.38782 0.36245 16 17 18 19 20 0.53391 0.51337 0.49363 0.47464 0.45639 0.49447 0.47318 0.45280 0.43330 0.41464 0.45811 0.43630 0.41552 0.39573 0.37689 0.42458 0.40245 0.38147 0.36158 0.34273 0.39365 0.37136 0.35034 0.33051 0.31180 0.36510 0.34281 0.32189 0.30224 0.28380 0.33873 0.31657 0.29586 0.27651 0.25842 21 22 23 24 25 0.43883 0.42196 0.40573 0.39012 0.37512 0.39679 0.37970 0.36335 0.34770 0.33273 0.35894 0.34185 0.32557 0.31007 0.29530 0.32486 0.30793 0.29187 0.27666 0.26223 0.29416 0.27751 0.26180 0.24698 0.23300 0.26648 0.25021 0.23494 0.22060 0.20714 0.24151 0.22571 0.21095 0.19715 0.18425 26 27 28 29 30 0.36069 0.34682 0.33348 0.32065 0.30832 0.31840 0.30469 0.29157 0.27902 0.26700 0.28124 0.26785 0.25509 0.24295 0.23138 0.24856 0.23560 0.22332 0.21168 0.21981 0.20737 0.19563 0.18456 0.17411 0.19450 0.18263 0.17148 0.16101 0.15119 0.17220 0.16093 0.15040 0.14056 0.13137 0.20064 31 32 33 34 35 0.29646 0.28506 0.27409 0.26355 0.25342 0.25550 0.24450 0.23397 0.22390 0.21425 0.22036 0.20987 0.19987 0.19035 0.18129 0.19018 0.18027 0.17087 0.16196 0.15352 0.16425 0.15496 0.14619 0.13791 0.13011 0.14196 0.13329 0.12516 0.11752 0.11035 0.12277 0.11474 0.10723 0.10022 0.09366 40 0.20829 0.17193 0.14205 0.11746 0.09722 0.08054 0.06678 45 0.17120 0.13796 0.11130 0.08988 0.07265 0.05879 0.04761 50 0.14071 0.11071 0.08720 0.06877 0.05429 0.04291 0.03395 Present Value of $1 at Compound Interest Due in n Periods Periods 8% 9% 10% 11% 12% 13% 14% 1 2 3 4 0.92593 0.85734 0.79383 0.73503 0.68058 0.91743 0.84168 0.77218 0.70843 0.64993 0.90909 0.82645 0.75131 0.68301 0.90090 0.81162 0.73119 0.65873 0.59345 0.89286 0.79719 0.71178 0.63552 0.56743 0.88496 0.78315 0.69305 0.61332 0.54276 0.87719 0.76947 0.67497 0.59208 0.51937 5 0.62092 6 0.56447 0.51316 0.53464 0.48166 7 8 9 10 0.63017 0.58349 0.54027 0.50025 0.46319 0.59627 0.54703 0.50187 0.46043 0.42241 0.46651 0.42410 0.38554 0.43393 0.39092 0.35218 0.50663 0.45235 0.40388 0.36061 0.32197 0.48032 0.42506 0.37616 0.33288 0.29459 0.45559 0.39964 0.35056 0.30751 0.26974 11 12 13 14 15 0.42888 0.39711 0.36770 0.34046 0.31524 0.38753 0.35553 0.32618 0.29925 0.27454 0.35049 0.31863 0.28966 0.26333 0.23939 0.31728 0.28584 0.25751 0.23199 0.20900 0.28748 0.25668 0.22917 0.20462 0.18270 0.26070 0.23071 0.20416 0.18068 0.15989 0.23662 0.20756 0.18207 0.15971 0.14010 16 17 18 19 20 0.29189 0.27027 0.25025 0.23171 0.21455 0.25187 0.23107 0.21199 0.19449 0.17843 0.21763 0.19784 0.17986 0.16351 0.14864 0.18829 0.16963 0.15282 0.13768 0.12403 0.16312 0.14564 0.13004 0.11611 0.10367 0.14150 0.12522 0.11081 0.09806 0.08678 0.12289 0.10780 0.09456 0.08295 0.07276 21 22 23 24 25 0.19866 0.18394 0.17032 0.15770 0.14602 0.16370 0.15018 0.13778 0.12640 0.11597 0.13513 0.12285 0.11168 0.10153 0.09230 0.11174 0.10067 0.09069 0.08170 0.07361 0.09256 0.08264 0.07379 0.06588 0.05882 0.07680 0.06796 0.06014 0.05323 0.04710 0.06383 0.05599 0.04911 0.04308 0.03779 26 27 28 29 30 0.13520 0.12519 0.11591 0.10733 0.09938 0.10639 0.09761 0.08955 0.08215 0.07537 0.08391 0.07628 0.06934 0.06304 0.05731 0.06631 0.05974 0.05382 0.04849 0.04368 0.05252 0.04689 0.04187 0.03738 0.03338 0.04168 0.03689 0.03264 0.02889 0.02557 0.03315 0.02908 0.02551 0.02237 0.01963 31 32 33 34 35 0.09202 0.08520 0.07889 0.07305 0.06763 0.06915 0.06344 0.05820 0.05339 0.04899 0.05210 0.04736 0.04306 0.03914 0.03558 0.03935 0.03545 0.03194 0.02878 0.02592 0.02980 0.02661 0.02376 0.02121 0.01894 0.02262 0.02002 0.01772 0.01568 0.01388 0.01722 0.01510 0.01325 0.01162 0.01019 40 0.04603 0.03184 0.02209 0.01538 0.01075 0.00753 0.00529 45 0.03133 0.02069 0.01372 0.00913 0.00610 0.00409 0.00275 50 0.02132 0.01345 0.00852 0.00542 0.00346 0.00222 0.00143 5.5% 6% 6.5% 79% Present Value of Ordinary Annuity of $1 per Period Periods 4.0% 4.5% 5% 1 0.96154 0.95694 0.95238 2 1.88609 1.87267 1.85941 3 2.77509 2.74896 2.72325 3.62990 3.58753 3.54595 5 4.45182 4.38998 4.32948 0.94787 1.84632 2.69793 3.50515 4.27028 0.94340 1.83339 2.67301 3.46511 4.21236 0.93897 1.82063 2.64848 3.42580 4.15568 0.93458 1.80802 2.62432 3.38721 4.10020 4 6 7 8 9 10 5.24214 6.00205 6.73274 7.43533 8.11090 5.15787 5.89270 6.59589 7.26879 7.91272 5.07569 5.78637 6.46321 7.10782 7.72173 4.99553 5.68297 6.33457 6.95220 7.53763 4.91732 5.58238 6.20979 6.80169 7.36009 4.84101 5.48452 6.08875 6.65610 7.18883 4.76654 5.38929 5.97130 6.51523 7.02358 11 12 13 14 15 8.76048 9.38507 9.98565 10.56312 11.11839 8.52892 9.11858 9.68285 10.22283 10.73955 8.30641 8.86325 9.39357 9.89864 10.37966 8.09254 8.61852 9.11708 9.58965 10.03758 7.88687 8.38384 8.85268 9.29498 9.71225 7.68904 8.15873 8.59974 9.01384 9.40267 7.49867 7.94269 8.35765 8.74547 9.10791 16 17 18 19 20 11.65230 12.16567 12.65930 13.13394 13.59033 11.23402 11.70719 12.15999 12.59329 13.00794 10.83777 11.27407 11.68959 12.08532 12.46221 10.46216 10.86461 11.24607 11.60765 10.10590 10.47726 10.82760 11.15812 11.46992 9.76776 10.11058 1043247 10.73471 11.01851 9.44665 9.76322 10.05909 10.33560 10.59401 11.95038 21 22 23 24 25 14.02916 14.45112 14.85684 15.24696 15,62208 13.40472 13.78442 14.14777 14.49548 14.82821 12.82115 13.16300 13.48857 13.79864 14.09394 12.27524 12.58317 12.87504 13.15170 1341393 11.76408 12.04158 12.30338 12.55036 12.78336 11.28498 11.53520 11.77014 11.99074 12.19788 10.83553 11.06124 11.27219 11.46933 11.65358 26 27 28 29 30 15.98277 16.32959 16.66306 16.98371 17.29203 15.14661 15.45130 15.74287 16.02189 16.28889 14.37519 14.64303 14.89813 15.14107 15.37245 13.66250 13.89810 14.12142 14.33310 14.53375 13.00317 13.21053 13.40616 13.59072 13.76483 12.39237 12.57500 12.74648 12.90749 13.05868 11.82578 11.98671 12.13711 12.27767 12.40904 31 32 33 34 35 17.58849 17.87355 18.14765 18.41120 18.66461 16.54439 16.78889 17.02286 17.24676 17.46101 15.59281 15.80268 16.00255 16.19290 16.37419 14.72393 14.90420 15.07507 15.23703 15.39055 13.92909 14.08404 14.23023 14.36814 1449825 13.20063 13.33393 13.45909 13.57661 13.68696 12.53181 12.64656 12.75379 12.85401 12.94767 40 19.79277 18.40158 17.15909 16.04612 15.04630 14.14553 13.33171 45 20.72004 19.15635 17.77407 16.54773 15.45583 14.48023 13.60552 50 21.48218 19.76201 18.25593 16.93152 15.76186 14.72452 13.80075 Present Value of Ordinary Annuity of $1 per Period Periods 8% 10% 9% 11% 12% 13% 14% 1 2 3 4 0.92593 1.78326 2.57710 3.31213 3.99271 0.91743 1.75911 2.53129 3.23972 3.88965 0.90909 1.73554 2.48685 3.16987 3.79079 0.90090 1.71252 2.44371 3.10245 3.69590 0.89286 1.69005 2.40183 3.03735 3.60478 0.88496 1.66810 2.36115 2.97447 3.51723 0.87719 1.64666 2.32163 2.91371 3.43308 5 6 7 8 4.62288 5.20637 5.74664 6.24689 6.7 1008 4.48592 5.03295 5.53482 5.99525 6.41766 4.35526 4.86842 5.33493 5.75902 6.14457 4.23054 4.71220 5.14612 5.53705 5.88923 4.11141 456376 4.96764 5.32825 5.65022 3.99755 4.42261 4.79677 5.13166 5.42624 3.88867 4.28830 4.63886 4.94637 5.21612 9 10 11 12 13 14 15 7.13896 7.53608 7.90378 8.22424 8.55948 6.80519 7.16073 7.48690 7.78615 8.06069 6.49506 6.81369 7.10336 7.36669 7.60608 6.20652 6.49236 6.74987 6.96187 7.19087 5.93770 6.19437 6.42355 6.62817 6.81086 5.68694 5.91765 6.12181 6.30249 6.46238 5.45273 5.66029 5.84236 6.00207 6.14217 16 17 18 19 20 8.85137 9.12164 9.37189 9.60360 9.81815 8.31256 8.54363 8.75563 8.95011 9.12855 7.82371 8.02155 8.20141 8.36492 8.51356 7.37916 7.54879 7.70162 7.83929 7.96333 6.97399 7.11963 7.24967 7.36578 7.46944 6.60388 6.72909 6.83991 6.93797 7.02475 6.26506 6.37286 6.46742 6.55037 6.62313 21 22 23 24 25 10.01680 10.20074 10.37106 10.52876 10.67478 9.29224 9.44243 9.58021 9.70661 9.82258 8.64869 8.77154 8.88322 8.98474 9.07704 8.07507 8.17574 8.26643 8.34814 8.42174 7.56200 7.64465 7.71843 7.78432 7,84314 7.10155 7.16951 7.22966 7.28288 7.32998 6.68696 6.74294 6.79200 6.83514 6.87293 10.80998 10.93516 6.90608 6.93515 26 27 28 29 30 11.05108 11.15841 11.25778 9.92897 10.02658 10.11613 10.19828 10.27365 9.16095 9.23722 9.30657 9.36961 9.42691 8.48806 8.54780 8.60162 8.65011 8.69379 7.89566 7.94255 7.98442 8.02181 8.05518 7.37167 7.40856 7.44120 7.47009 7.49565 6.96066 6.98304 7.00266 31 32 33 8.08499 8.11159 11.34980 11.43500 11.51389 11.58693 11.65457 10.34280 10.40624 10.46444 10.51784 10.56682 9.47901 9.52638 9.56943 9.60857 9.64416 8.73315 8.76860 8.80054 8.82932 8.85524 8.13535 7.51828 7.53830 7.55602 7.57170 7.58557 7.01988 7.03498 7.04823 7.05985 7.07005 34 35 8.15656 8.17550 40 11.92461 10.75736 9.77905 8.95105 8.24378 7.63438 7.10504 45 12.10840 10.88120 9.86281 9.00791 8.28252 7.66086 7.12322 50 12.23348 10.96168 9.91481 9.04165 8.30450 7.67524 67524 7.13266