Question

Exercise 10-2 Straight-Line: Amortization of bond discount LO P2 Tano issues bonds with a par value of $92,000 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 $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 an amortization table using the straight-line method to amortize the discount for these bonds. Complete this question by entering your answers in the tabs below. Required 1 Requiregin Required 3 Required 2 What is the amount of the urscournt oh these bonds at issuance? Discount Required 2

Answer 1

Face value of the Bond Less: Bond Selling price Discount on bonds Payable Discount 92000 874801 45201 4520 Total Bond interest Expenses over the lifeof the bond Amount Repaid: 6 Payment of $4600 27600 Par value at Marturiy 92000 Total repaid 119600) Less amount borrowed 87480 Total bond interest Expenses 32120 Interest =92000*10%*6/12 = 4600 Semiannual Period Unmortized Discount Carrying Value 01-01-2017 4520 874801 06/30/2017 3767 88233 12/31/2017 3014 88986 06/30/2018 2261 89739 12/31/2018 1508 90492 06/30/2019 91245 12/31/2019 2(or) 0 91998 (or) 92000 755