The total amount of interest expense that Maxwell Manufacturing will record over the life of the bonds is $388,075 ($412,800 - $24,725).
Data and Calculations:
Bonds' Face Value = $430,000
Maturity period = 12 years
Coupon Interest Rate = 8%
Issuance rate =105.75
Bonds Proceeds = $454,725 ($430,000 x 1.0575)
Bonds Premium (to be amortized over 12 years) = $24,725 ($454,725 - $430,000)
Annual cash payments to bondholders = $34,400 ($430,000 x 8%)
Total cash payments to bondholders = $412,800 ($34,400 x 12)
Thus, Maxwell Manufacturing will record the total amount of interest expense of $388,075 over the life of the bonds.
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