Question

Tano issues bonds with a par value of $88,000 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 $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 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.

Answer 2 Part 1) 3 Discount on bonds = Face Value - Issue Price 4 = 88000-83676 5 = $ 4324 7 Part 2) 8 Total Bond Interest = (face Value *rate*life) + discount on bond 9 = (88000*10%*3) +4324 10 = 26400 +4324 11 = $ 30724 13 Part 3) Date Cash Paid Inetrest expense Discount Amortization Carrying Value 15 1 January.2018 16 30 June, 2018 17 31 December. 2018 18 30 June. 2019 19 31 December, 2019 20 30 June 2020 21 31 December. 2020 4400 4400 4400 4400 4400 4400 5121 5121 5121 5121 5121 5119 Unamortized discount 4324 3603 2882 2161 1440 719 o 83676 84397 85118 85839 86560 87281 88000