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.

1.

2.

Amount repaid:
"#" of payments "#" =
per value of maturity:
total repaid:
less amount borrowed:
Total bond interest expense:

3.

semi-annual period end	unamortized discount	carrying value
01/01/2017
6/30/2017
12/31/2017
6/30/2017
12/31/2018
6/30/2019

Answer 1

1
Discount	6709	=91000-84291
2
Total interest expense over life of bonds
6 payments of $ 4095	24570
Par value at maturity	91000
Total repaid	115570
Less: Amount borrowed	84291
Total bond interest expense	31279
3
Semiannual Interest period end	Unamortized Discount	Carrying value
01/01/2017	6709	84291
06/30/2017	5591	85409
12/31/2017	4473	86527
06/30/2018	3355	87645
12/31/2018	2237	88763
06/30/2019	1119	89881
12/31/2019	0	91000