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  #1 ()
: Southlake Corporation issued $ 900,000 of 8% bonds on March 1, 20X1. The bonds pay interest on March 1 and September 1 and mature in 10 years. How do I calculate the following:

Case A- -The bonds are issued at 100.

a. Cash inflow on the issuance date



b. Total cash outflow through maturity

c. Total borrowing cost over the life of the bond issue

d. Interest expense for the year ended December 31, 20X1

e. Amortization for the year ended December 31, 20X1

f. Unamortized premium as of December 31, 20X1

g. Unamortized discount as of December 31, 20X1

h. Bond carrying value as of December 31, 20X1
Case B- -the bonds are issued at 96
Case C- -the bonds are issued at 105
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  #2 ()
: Case A- -The bonds are issued at 100.

a. Cash inflow on the issuance date
$900,000
The bonds were issued at 100, which means they were issued at 100% of their face value.

b. Total cash outflow through maturity
$900,000 + (900,000 x 8% x 10) = $1,620,000

c. Total borrowing cost over the life of the bond issue
900,000 x 8% x 10 = $720,000

d. Interest expense for the year ended December 31, 20X1
Ten months of interest expense has accrued.
900,000 x 8% x 10/12 = $600,000

e. Amortization for the year ended December 31, 20X1
0
The bonds were issued at face value, so there is no discount or premium to amortize.

f. Unamortized premium as of December 31, 20X1
0
See (e.)

g. Unamortized discount as of December 31, 20X1
0
See (e.)

h. Bond carrying value as of December 31, 20X1
$600,000
When bonds are issued at face value the carrying value will be the same.
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