Question

Tano Company issues bonds with a par value of $88,000 on January 1, 2019. 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 $83,676. 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 for these bonds. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 How much total bond interest expense will be recognized over the life of these bonds? $ 21,620 Total Bond Interest Expense Over Life of Bonds: Amount repaid: 5 payments of $ 4,324 Par value at maturity Total repaid Less amount borrowed 21,620 Total bond interest expense $ 21,620

Answer 1

SOLUTION : 1
	Discount on bonds at issuance = Par vlaue of the bonds - Issue price
	Discount on bonds at issuance =	$             88,000	-	$            83,676
	Discount on bonds at issuance =	$                4,324
SOLUTION : 2
	CALCULATION OF TOTAL BONDS INTEREST EXPENSES OVER LIFE FO THE BONDS
	Bonds maturity =	3 year	or	6 period
	Amount Repaid:
	6 Payment of $ 4,400 =	$             26,400
	Par value at maturity	$             88,000
	Total Repiad	$          1,14,400
	Less: Amount borrowed	$             83,676
	Total Bond Interest Expenses	$             30,724
	NOTE:
	Par Value of bonds =	$             88,000
	Interest @ 10% =	$                8,800
	Half year interest =	$                4,400
SOLUTION : 3
	SEMI-ANNUAL PERIOD END	Unamoritzed Discount		Carrying value
	01/01/2019	$                4,324		$            83,676
	06/30/2019	$                3,603		$            84,397
	12/31/2019	$                2,882		$            85,118
	06/30/2020	$                2,161		$            85,839
	12/31/2020	$                1,440		$            86,560
	06/30/2021	$                   719		$            87,281
	12/31/2021	$                       -		$            88,000