Accounting for Bonds Sold at a Discount The Biltmore Nationa

Accounting for Bonds Sold at a Discount The Biltmore National Bank raised capital through the sale of $150 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. Calculate the proceeds that The Biltmore National Bank received from the sale of the 8% bonds. Round your answer to the nearest dollar. How will the bonds be disclosed on Biltmore\'s balance sheet immediately following the sale? Round your answers to the nearest dollar. Balance sheet disclosure (following sale): Bonds payable Less: Bonds discount (enter as negative) Bonds payable(net) Calculate the interest expense on the bonds for the first year that the bonds are outstanding. Do not round until final answer. Round answers to the nearest dollar. First six months $ Second six months Calculate the book value of the bonds at the end of the first year Do not round until final answer. Round answer to the nearest dollar.

Solution

Par value of Bonnds 150,000,000 Stated rate of interest 8% Market rate of iinterest 10% Cash interest Semi Annual 6000000 (150000,000*8%*6/12) Annuity factor for 20 periods 12.4622 Present value factor for 20th period 0.3769 Present value of interest payment 74773200.00 Present value of Par value 56535000.00 Issue Price 131308200.00 Issue price: 131308200 Balance sheet after issuance: Bonds payable 150,000,000 less: Discount on Bonds 18,691,800 Bonds payable (Net) 131,308,200 Amort chart Date Cash interest Int exp Discount Carrying value Amortized Issuance 131,308,200 First six month 6,000,000 6565410 565410 131,873,610 Second 6mth 6,000,000 6593681 593,681 132,467,291 Interest expense for first year First 6 month 6,565,410 Next 6 month 6,593,681 Interest expense for first year 13,159,091 Book Value of Bonds at the end of first year Bonds payable 150,000,000 Less: Discount on bonds payable 17532709 (18691800-565410-593681) Bonds payable (Net) 132,467,291