Town Bank has $400,000 of 6% debenture bonds outstanding. The bonds were issued at 102 in 2021 and mature in
2041. The bonds have annual interest payments.
Read the requirements.
Requirement 1. How much cash did Town Bank receive when it issued these bonds?
At the time the bonds were issued, Town Bank received cash of
$408,000
Requirement 2. How much cash in total will Town Bank pay the bondholders through the maturity date of the bonds?
Through the maturity date of the bonds, Town Bank will pay the bondholders total cash of $ 880,000
Requirement 3. Calculate the difference between your answers to requirements 1 and 2. This difference represents
Town Bank's total interest expense over the life of the bonds.
The difference between your answers to requirements 1 and 2 is $ 472,000
Requirement 4. Compute Town Bank's annual interest expense using the straight-line amortization method. Multiply
this amount by 20. Your 20-year total should be the same as your answer to requirement 3.
Town Bank's annual interest expense using the straight-line amortization method is
$
23,600
Multiply the annual interest expense by 20.
The 20-year straight-line interest total is