Question

# Tano issues bonds with a par value of \$84,000 on January 1, 2017. The bonds’ annual...

Tano issues bonds with a par value of \$84,000 on January 1, 2017. The bonds’ annual contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 12%, and the bonds are sold for \$77,807.

1. What is the amount of the discount on these bonds at issuance?
2. How much total bond interest expense will be recognized over the life of these bonds?

6 payments of___?

par value at maturity=___

3. Prepare an amortization table using the straight-line method to amortize the discount for these bonds.

Par Value = \$84,000
Issue Price = \$77,807

Discount on Issue = Par Value - Issue Price
Discount on Issue = \$84,000 - \$77,807
Discount on Issue = \$6,193

Par Value = \$84,000

Annual Coupon Rate = 9%
Semiannual Coupon Rate = 4.5%
Semiannual Coupon = 4.5% * \$84,000
Semiannual Coupon = \$3,780

Discount on Issue = \$6,193
Semiannual Period = 6

Semiannual Amortization of Discount = Discount on Issue / Semiannual Period
Semiannual Amortization of Discount = \$6,193 / 6
Semiannual Amortization of Discount = \$1,032

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