Question

Tano Company issues bonds with a par value of $92,000 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 $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 a straight-line amortization table for these bonds.

Answer 1

92000 87480 4520 4520 Face value of the Bond Less: Bond Selling price Dicount on bonds Payable Discount Total Bond interest Expenses over the lifeof the bond Amount Repaid : 6 Payment of $2300 Par value at Marturiy Total repaid Less amount borrowed Total bond interest Expenses 13800 92000 105800 87480 18320 Semiannual Period Unmortized Discount Carrying Value 01-01-2019 4520 87480 06/30/2019 3767 88233 12/31/2019 3013 88987 06/30/2020 2260 89740 12/31/2020 1507 90493 06/30/2021 753 91247 12/31/2021 92000 Semiannula Discount Amortized =4520/6 =753.33