Question

Tano issues bonds with a par value of $91,000 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 $84,291. 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 on bonds payable = 91000-84291 = $6709

2) Bonds interest expense = (91000*9%*3)+6709 = $31279

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

Date	Interest paid	Amortized discount	Bonds interest expense	Unamortized discount	Carrying value
jan 1,2017					84291
June 30, 2017	4095	1118	5213	5591	85409
Dec 31,2017	4095	1118	5213	4473	86527
June 30,2018	4095	1118	5213	3355	87645
Dec 31,2018	4095	1118	5213	2237	88763
June 30,2019	4095	1118	5213	1119	89881
Dec 31,2019	4095	1119	5214	0	91000