Question

Tano Company issues bonds with a par value of $180,000 on January 1, 2019. 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.

 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 a straight-line amortization table like Exhibit 14.7 for these bonds.

Answer 1

In the Present question :-
Principal	180000
Coupon rate	4.00%	(8/2)
Years	6
Required rate	5.00%	(10/2)
Yearly Interest	$7,200.00	(180000*4%)
Payment and Discounting Chart is as follows:-
1	0.9524	$7,200.00	$6,857.14
2	0.9070	$7,200.00	$6,530.61
3	0.8638	$7,200.00	$6,219.63
4	0.8227	$7,200.00	$5,923.46
5	0.7835	$7,200.00	$5,641.39
6	0.7462	$187,200.00	$139,691.52
		TOTAL	$170,863.75
1.) The amount of discount on these Bonds at issuance would be
(180000-170863.75) = 9136.25$
2.) Total Bond interest expense that would be recognized would
be (9136.25) + (7200*5) = 52336.24$
3.)
Bond Ammortization Schedule would be
A	B	C	D	E	F	G
	Interest	Interest	Ammortizing	Debit bal.	Credit Bal.	Book Value
	Payment	Expense	Bond Discount	in the account	in the account	of Bonds
	4% * Face	Mkt 5 % * G	C minus B	Bond Discount	Bonds Payable	F Minus E
01/01/2019				$9,136.25	$180,000.00	$170,863.75
30/06/2019	$7,200.00	$8,543.19	$1,343.19	$7,793.06	$180,000.00	$172,206.94
31/12/2019	$7,200.00	$8,610.35	$1,410.35	$6,382.72	$180,000.00	$173,617.28
30/06/2020	$7,200.00	$8,680.86	$1,480.86	$4,901.85	$180,000.00	$175,098.15
31/12/2020	$7,200.00	$8,754.91	$1,554.91	$3,346.94	$180,000.00	$176,653.06
30/06/2021	$7,200.00	$8,832.65	$1,632.65	$1,714.29	$180,000.00	$178,285.71
31/12/2021	$7,200.00	$8,914.29	$1,714.29	$0.00	$180,000.00	$180,000.00

THANKS & REGARDS

HOPING FOR A POSITIVE RESPONSE

Answer 2

1.

Discount

9,138

2. 

Total Bond Interest Expense Over Life of Bonds

Amount repaid:

6 Payments of $7,200	43,200
Par Value at Maturity	180,000
Total repaid	223,200
Less amount Borrowed	170,862
Total Bond Interest Expense	52,338

3.

Seminannual Period-End	Unamortized Discount	Carrying Value
01/01/2019	9,138	170,862
06/30/2019	7,615	172,385
12/31/2019	6,092	173,908
06/30/2020	4,569	175,431
12/31/2020	3,046	176,954
06/30/2021	1,523	178,477
12/31/2021	0	180,000