The longo corporation issued $60 million maturity value in notes, carrying a coupon rate of six percent, with interest paid semiannually. at the time of the note issue, equivalent risk-rated debt instruments carried yield rates of eight percent. the notes matured in five years. calculate the proceeds that longo corporation will receive from the sale of the notes. how will the notes be disclosed on longo’s balance sheet immediately following the sale? calculate the interest expense for longo corporation for the first year that the notes are outstanding. calculate the balance sheet value of the notes at the end of the first year

It will receive: 47,015,745

Balance sheet after issuance of the bonds:

bonds payable:                     60,000,000

discount on bond payable: (12,984, 255)  

  carrying value:                   47, 015, 745

Interest expense for the first years outstanding: 3,764,485‬

Balance sheet after one year:

bonds payable:                     60,000,000

discount on bond payable:    (12,819,770)  

  carrying value:                     47,180,230‬

Explanation:

We will calculate the present value of the coupon payment and the maturity at the market value.

Present value of the cuopon using ordinary annuity present value

Coupon payment: 60,000,000 x 6%/2 as the payment are semiannually $1,800,000

time: 5 years x 2 payment per year = 10 payment

rate8% / 2 paymnet per year: 0.04

PV$14,599,612.4028

Maturity present value using lump sum present value

Maturity   60,000,000.00

time   8.00

rate  0.08

PV   32,416,133.07

Then we sum both:

PV coupon$14,599,612.4028

PV maturity  $32,416,133.0701

Total market$47,015,745

face value:        60,000,000

discount:           12 ,984,255

Interest expense:

first payment:

47,015,745 x 0.08/2 = 1.880.630 interest expense

       cash proceeeds  1,800,000

       amortization             80,630

second payment:

(47,015,745 + 80,630) = carrying value = 47,096,375

47,096,375 x 0.04 = 1,883,855‬ interest expense

     cash proceeds   1,800,000

    amortization            83,855

total interest expense 1,880,630 + 1,883,855 = 3,764,485‬

discount on bonds: 12 ,984,255 - 80,630 - 83,855 = 12,819,770

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