Question

Tano issues bonds with a par value of $92,000 on January 1, 2017. The bonds' annual contract rate is 10%, 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 $87,480. 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the amount of the discount on these bonds at issuance? Discount < Required 1 Required 2 >

Answer 1

1
Discount	4520	=92000-87480
2
Total interest expense over life of bonds
6 payments of $ 4600	27600
Par value at maturity	92000
Total repaid	119600
Less: Amount borrowed	87480
Total bond interest expense	32120
3
Semiannual Interest period end	Unamortized Discount	Carrying value
01/01/2017	4520	87480
06/30/2017	3767	88233
12/31/2017	3014	88986
06/30/2018	2261	89739
12/31/2018	1508	90492
06/30/2019	755	91245
12/31/2019	0	92000
Workings:
Semiannual Interest	4600	=92000*10%*6/12
Semiannual Discount amortized	753	=4520/6