Question

Exercise 10-2 Straight-Line: Amortization of bond discount LO P2 Tano issues bonds with a par value of $95,000 on January 1, 2018. 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 $90,177. 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.

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

А в E 1 Answer 2 3 Part 1) 4 Discount on bonds = Face Value - Issue Price 5 = 95000-90177 6 = $ 4823 8 Part 2) 9 Total Bond Interest = (face Value *rate*life) + discount on bond 10 = (95000*8%*3) +4823 11 = 22800 +4823 12 = $ 27623 13 14 Part 3) Inetrest | Discount Date Cash Paid 15 expense Amortization 16 1 January 2018 17 30 June. 2018 3800 4604 804 18 31 December 2018 3800 4604 804 19 30 June 2019 3800 4604 20 31 December. 2019 3800 4604 804 21 30 June 2020 3800 4604 804 22 31 December. 2020 3800 4603 Unamortized discount Carrying Value 804 4823 4019 3215 2411 1607 803 901771 90981 91785 92589 93393 94197 95000 803