Question

# Tano issues bonds with a par value of \$83,000 on January 1, 2017. The bonds’ annual...

Tano issues bonds with a par value of \$83,000 on January 1, 2017. The bonds’ annual contract rate is 10%, 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 \$78,922.

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.

 Req 1. Par value of bonds 83000 Less: Issue price 78922 Total discount 4078 Req 2. 6 payments of 4150 24900 Add: Maturity value 83000 Total repayment 107900 Less: Amount borrowed 78922 Total Interest expense 28978 Req 3. Period Cash int Discount Interest Discount Carrying amortized Expense unamortized value 01.01.17 4078 78922 30.06.17 4150 679.67 4829.67 3398.33 79601.67 31.12.17 4150 679.67 4829.67 2718.66 80281.34 30.06.18 4150 679.67 4829.67 2038.99 80961.01 31.12.18 4150 679.67 4829.67 1359.32 81640.68 30.06.19 4150 679.67 4829.67 679.65 82320.35 31.12.19 4150 679.65 4829.65 0 83000

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