Question

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Stanford issues bonds dated January 1, 2017, with a par value of $250,000. 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 $231,570. 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 effective interest method to amortize the discount for these bonds. 214 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 2 >

Answer 1

Face Value	$ 250,000.00
Semiannual Coupon Rate	4.50%
Semiannual coupon Payment	$   11,250.00
Rate	6%
Period	6
Current Price	$231,570.00
a)
Face Value	$ 250,000.00
Current Price	$231,570.00
Discount	$   18,430.00
b)
Total bond interest expense over the life of the bonds
6 payments of $11,250	$   67,500.00
Par value at maturity	$ 250,000.00
Total repaid	$ 317,500.00
Less amount borrowed	$231,570.00
Total bond interest expense	$   85,930.00
c)	Effective interest amortization table
	A	B	C	D	E
Semiannual Interest Period-End	Cash Interest Paid [4.5% x $250,000]	Bond Interest Expense [6% x Prior (E)]	Discount Amortization[(B) - (A)]	Unamortized Discount [Prior (D) - (C)]	Carrying Value [$250,000 - (D)]
1/1/17				$      18,430	$      231,570
6/30/17	$        11,250	$      13,894	$            2,644	$      15,786	$      234,214
12/31/17	$        11,250	$      14,053	$            2,803	$      12,983	$      237,017
6/30/18	$        11,250	$      14,221	$            2,971	$      10,012	$      239,988
12/31/18	$        11,250	$      14,399	$            3,149	$        6,863	$      243,137
6/30/19	$        11,250	$      14,588	$            3,338	$        3,524	$      246,476
12/31/19	$        11,250	$      14,774	$            3,524	$               0	$      250,000
Total	$        67,500	$      85,930	$          18,430
*Adjusted for rounding.