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.
  

How much total bond interest expense will be recognized over the life of these bonds?

Total Bond Interest Expense Over Life of Bonds:
Amount repaid:
6	payments of
Par value at maturity			91,000
Total repaid
Less amount borrowed
Total bond interest expense

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.)

Semiannual Period-End	Unamortized Discount	Carrying Value
01/01/2017
06/30/2017
12/31/2017
06/30/2018
12/31/2018
06/30/2019
12/31/2019

Answer 1

1) Discount on bonds payable = 91000-84291 = $6709

2) Total interest expense

Total Bond Interest Expense Over Life of Bonds: Amount repaid: 6 payments of 91000*4.5% = 4095 4095*6 = 24570 Par value at maturity 91,000 Total repaid 115570 Less amount borrowed -84291 Total bond interest expense 31279

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.)

Semiannual 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