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Sleet Company has proposed a bond offering of $5,000,000 at a contract rate of interest of...

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Accounting

  1. Sleet Company has proposed a bond offering of$5,000,000 at a contract rate of interest of 6% and interestpayments to be paid semi-annually. The question is if the marketrate is 10% then what would be the cash proceeds for this 12-yearbond assuming all bonds were sold at auction?
  1. Another question is what would be the amount ofinterest charged to Sleet Company during the first year the bondswere outstanding?
  1. What is the total amount of interest paid during theentire life of the bonds?

Answer & Explanation Solved by verified expert
3.9 Ratings (701 Votes)

Table values are based on:
n= 24
i= 5.0%
Cash Flow Table Value Amount Present Value
Interest 13.79864 $1,50,000 $20,69,796
Principal 0.31007 $50,00,000 $15,50,350
Price of Bonds(Cash Proceedings) $36,20,146
Date Interest Payment($5,000,000*3%) Interest expenses(Bond carrying amount*12%) Discount amorrtization Bond carrying amount
Col I Col II Col III Col IV(Col III - Col II) Col V
Issue date                    36,20,146
Interest 1                                                  1,50,000                                                               1,81,007                                                31,007                    36,51,153
Interest 2                                                  1,50,000                                                               1,82,558                                                32,558                    36,83,711
Bond Interest expenses for Year 1 =$181,007 + $182,558 =$363,565
Total Interest paid for entire lofe of Bonds =$150,000*24 =$3,600,000

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