Lewis Co. produces and sells aviation equipment. On the first day of its fiscal year, Lewis Co. issues $60,000,000 of five-year, 10% bonds at a market (effective interest rate of 13%, with interest payable semiannually, Compute the following, presenting figures used in your computations.
a. The amount of cash proceeds from the sale of the bonds. Use the tables of present values in Exhibits 4 and 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.
 

a. Present value of $1 for 10 (semiannual)

periods at 6.5% (semiannual rate).................................. 0.53273

Face amount......................................................................... × $60,000,000 $31,963,800

Present value of annuity of $1 for 10 periods at 6.5%......... 7.18883

Semiannual interest payment................................................ × $3,000,000 21,566,490

Proceeds of bond sale.......................................................... $53,530,290

b. 6.5% of carrying amount of $53,530,290............................ $ 3,479,469

First semiannual interest payment........................................ 3,000,000

Discount amortized.............................................................. $ 479,469

c. 6.5% of carrying amount of $54,009,759*.......................... $ 3,510,634

Second semiannual interest payment................................... 3,000,000

Discount amortized.............................................................. $ 510,634

*$53,530,290 + $479,469

d. Annual interest paid............................................................. $ 6,000,000

Plus discount amortized....................................................... 990,103*

Interest expense for first year............................................... $ 6,990,103

*$479,469 + $510,634