Answer:
It will receive: 47,015,745
Balance sheet after issuance of the bonds:
bonds payable: 60,000,000
discount on bond payable: (12,984, 255)
carrying value: 47, 015, 745
Interest expense for the first years outstanding: 3,764,485
Balance sheet after one year:
bonds payable: 60,000,000
discount on bond payable: (12,819,770)
carrying value: 47,180,230
Explanation:
We will calculate the present value of the coupon payment and the maturity at the market value.
Present value of the cuopon using ordinary annuity present value
[tex]C \times \frac{1-(1+r)^{-time} }{rate} = PV\\[/tex]
Coupon payment: 60,000,000 x 6%/2 as the payment are semiannually $1,800,000
time: 5 years x 2 payment per year = 10 payment
rate 8% / 2 paymnet per year: 0.04
[tex]1800000 \times \frac{1-(1+0.04)^{-10} }{0.04} = PV\\[/tex]
PV $14,599,612.4028
Maturity present value using lump sum present value
[tex]\frac{Maturity}{(1 + rate)^{time} } = PV[/tex]
Maturity 60,000,000.00
time 8.00
rate 0.08
[tex]\frac{60000000}{(1 + 0.08)^{8} } = PV[/tex]
PV 32,416,133.07
Then we sum both:
PV coupon $14,599,612.4028
PV maturity $32,416,133.0701
Total market $47,015,745
face value: 60,000,000
discount: 12 ,984,255
Interest expense:
first payment:
47,015,745 x 0.08/2 = 1.880.630 interest expense
cash proceeeds 1,800,000
amortization 80,630
second payment:
(47,015,745 + 80,630) = carrying value = 47,096,375
47,096,375 x 0.04 = 1,883,855 interest expense
cash proceeds 1,800,000
amortization 83,855
total interest expense 1,880,630 + 1,883,855 = 3,764,485
discount on bonds: 12 ,984,255 - 80,630 - 83,855 = 12,819,770
