ABC Company issues 10%, 15-year bonds with a par value of $280,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8%, which implies a selling price of 117 1⁄4. The effective interest method is used to allocate interest expense. 1. Using the implied selling price of 117 1⁄4, what are the issuer's cash proceeds from issuance of these bonds? 2. What total amount of bond interest expense will be recognized over the life of these bonds? 3. What amount of bond interest expense is recorded on the first interest payment date?

Answer and Explanation:

1. The computation of issuer's cash proceeds is shown below:-

Cash proceeds = Par value × Selling price

= $280,000 × 117.25%

= $328,300

2. The computation of total amount of bond interest expense is shown below:-

30 payment of $14,000 = $420,000

Semi-annual interest payment = Par value × Issued percentage ÷ 2

= $280,000 × 10% ÷ 2

= $14,000

Total repayment = $420,000 + $280,000

= $700,000

Total bond interest expense = Total repayment - amount borrowed

= $700,000 - $328,300

= $371,700

3. The computation of the amount of bond interest expense is shown below:-

Amount of bond interest expense = Semi-annual interest payment + Discount amortization

= $14,000 + ($280,000 - $328,300) ÷ 30

= $14,000 -$1,610

= $12,390

Since it is semi annual so we half the rate and doubles the time period

answer; correct answer is investing activity;

fractionally backed paper money

fiat money

paper money

metallic money