Question

Stanford issues bonds dated January 1, 2019, with a par value of $246,000. 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 $233,510. 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 effective interest amortization table for these bonds. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the amount of the discount on these bonds at issuance? Discount < Required 1 Required 2 >

Answer 1

1
Discount	12490	=246000-233510
2
Total interest expense over life of bonds
6 payments of $ 9840	59040
Par value at maturity	246000
Total repaid	305040
Less: Amount borrowed	233510
Total bond interest expense	71530
3
Semiannual Interest period end	Cash interest paid	Bond interest expense	Discount amortization	Unamortized Discount	Carrying value
01/01/2019				12490	233510
06/30/2019	9840	11676	1836	10654	235346
12/31/2019	9840	11767	1927	8727	237273
06/30/2020	9840	11864	2024	6703	239297
12/31/2020	9840	11965	2125	4578	241422
06/30/2021	9840	12071	2231	2347	243653
12/31/2021	9840	12187	2347	0	246000
Total	59040	71530	12490
Workings:
Cash interest paid	9840	=246000*8%*6/12
Bond interest expense = Carrying value X 10% X 6/12
Bond interest expense:
06/30/2019	11676	=233510*10%*6/12
12/31/2019	11767	=235346*10%*6/12
06/30/2020	11864	=237273*10%*6/12
12/31/2020	11965	=239297*10%*6/12
06/30/2021	12071	=241422*10%*6/12
12/31/2021	12187	=243653*10%*6/12