Compute Bond Proceeds, Amortizing Discount by Interest Method, and Interest Expense

Lewis Co. produces and sells aviation equipment. On the first day of its fiscal year, Lewis Co. issued $10,000,000 of four-year, 11% bonds at a market (effective) interest rate of 13%, with interest payable semiannually. Compute the following:

a. The amount of cash proceeds from the sale of the bonds. Use the tables of present values in Exhibit 4 and Exhibit 5. Round to the nearest dollar.

b. The amount of discount to be amortized for the first semiannual interest payment period, using the interest method. Round to the nearest dollar.

c. The amount of discount to be amortized for the second semiannual interest payment period, using the interest method. Round to the nearest dollar.

d. The amount of the bond interest expense for the first year.

Round to the nearest dollar.

Exhibit 4

Exhibit 5

EXHIBIT 4 Present Value of $1 at Compound Interest ANI-No 10% 0.90909 0.82645 13% 11% 0.90090 0.81162 Periods 4% 0.96154 0.956940 0.92456 0.915730 5% 0.95238 0.90703 51/2% 0.94787 0.89845 6% 0.94340 0.89000 7% 0.93458 0.87344 12% 0.89286 0.79719 0.88496 0.78315 0.88900 0.876300 0.86384 0.85161 0.83962 0.81630 0.75 131 0.73119 0.71178 0.69305 0.61332 0.54276 0.79031 0.767900 0.74622 0.72525 0.70496 0.66634 0.56447 0.53464 0.50663 0.48032 0.42506 0.37616 0.33288 0.29459 0.80722 0.76513 0.76290 0.71299 0.68301 0.62092 4 0.85480 0.838560 0.82193 0.802450 0.79209 0.74726 0.65873 0.59345 0.63552 0.56743 0.82270 0.78353 6 0.75992 0.734830 0.73069 0.703190 0.70259 0.672900 0.67556 0.643930 0.71068 0.67684 0.64461 0.61391 0.68744 0.65160 0.61763 0.58543 0.66506 0.62741 0.59190 0.55839 0.62275 0.58201 0.54393 0.50835 0.51316 0.46651 0.42410 0.38554 0.48166 0.43393 0.39092 0.35218 0.45235 0.40388 0.36061 0.32197 8