Garcia Company issues 10%, 15-year bonds with a par value of $240,000 and semiannual interest payments. On

Question:

Garcia Company issues 10%, 15-year bonds with a of $240,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8%, which implies a selling price of 1171/4. The effective interest method is used to allocate interest expense.
1. 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?

Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...