Question

Tano issues bonds with a par value of $95,000 on January 1, 2017. The bonds’ annual contract rate is 8%, 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 10%, and the bonds are sold for $90,177.
  
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?
3. Prepare an amortization table using the straight-line method to amortize the discount for these bonds.

Answer 1

1
Discount = 95000-90177= $4823
2
Total bond interest expense over fife of bonds:
Amount repaid:
6 payments of $3800	22800
Par value at maturity	95000
Total repaid	117800
Less amount borrowed	90177
Total bond interest expense	27623
3
Semiannual Period end	Unamortized discount	Carrying Value
1/1/2017	4823	90177
6/30/2017	4019	90981
12/31/2017	3215	91785
6/30/2018	2411	92589
12/31/2018	1607	93393
6/30/2019	803	94197
12/31/2019	0	95000