Question

# Tano issues bonds with a par value of \$180,000 on January 1, 2017. The bonds’ annual...

Tano issues bonds with a par value of \$180,000 on January 1, 2017. The bonds’ annual contract rate is 8%, 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 10%, and the bonds are sold for \$170,862.

What is the amount of the discount on these bonds at issuance?

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

Prepare an amortization table like the one in Exhibit 14.7 for these bonds; use the straight-line method to amortize the discount.

 1 Discount 9138 =180000-170862 2 Total interest expense over life of bonds 6 payments of \$ 7200 43200 Par value at maturity 180000 Total repaid 223200 Less: Amount borrowed 170862 Total bond interest expense 52338 3 Semiannual Interest period end Unamortized Discount Carrying value 01/01/2017 9138 170862 06/30/2017 7615 172385 12/31/2017 6092 173908 06/30/2018 4569 175431 12/31/2018 3046 176954 06/30/2019 1523 178477 12/31/2019 0 180000 Workings: Semi-annual interest payment 7200 =180000*8%/2 Semi-annual discount amortization 1523 =9138/6

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