Question

Stanford issues bonds dated January 1, 2017, with a par value of $254,000. 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 $241,104.

Prepare an amortization table using the effective interest method to amortize the discount for these bonds.
   

Answer 1

Semiannual Period-End	Cash interest paid	Bond interest expense	Discount amortization	Unamortized Discount	Carrying Value
01/01/2017				12896	241104
06/30/2017	10160	12055	1895	11001	242999
12/31/2017	10160	12150	1990	9011	244989
06/30/2018	10160	12249	2089	6922	247078
12/31/2018	10160	12354	2194	4728	249272
06/30/2019	10160	12464	2304	2424	251576
12/31/2019	10160	12584	2424	0	254000
Total	60960	73856	12896
Note:
Cash interest paid	=254000*8%*6/12
Bond interest expense is calculated by multiplying carrying value by 5% (10%*6/12)