Question:

Colwood Manufacturing Inc. has $280,000 of 13% debenture bonds outstanding. The bonds were issued at 109 in 2017 and mature in 2037.

Requirements:

1. How much cash did Colwood receive when it issued these bonds?

2. How much cash in total will Colwood pay the bondholders through the maturity date of the bonds?

3. Take the difference between your answers to Requirements 1 and 2. This difference represents Colwood's total interest expense over the life of the bonds.

4. Compute Colwood's annual interest expense by the straight-line amortization method. Multiply this amount by 20. Your 20-year total should be the same as your answer to Requirement 3.