Question

Tano issues bonds with a par value of $89,000 on January 1, 2015. 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 $82,439. 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. (Round your intermediate calculations to the nearest dollar amount.)

Answer 1

1
Discount	6561	=89000-82439
2
Total interest expense over life of bonds
6 payments of $ 4005	24030
Par value at maturity	89000
Total repaid	113030
Less: Amount borrowed	82439
Total bond interest expense	30591
3
Semiannual Interest period end	Unamortized Discount	Carrying value
01/01/2015	6561	82439
06/30/2015	5467	83533
12/31/2015	4373	84627
06/30/2016	3279	85721
12/31/2016	2185	86815
06/30/2017	1091	87909
12/31/2017	0	89000