Question

Stanford Issues bonds dated January 1, 2017, with a par value of $240,000. The bonds' annual contract rate is 9%, 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 $222,307. 1. What is the amount of the discount on these bonds at issuance? 2. How much total bond Interest expense will be recogned over the life of these bonds? 3. Prepare an amortization table using the effective interest method to amortize the discount for these bonds. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare an amortization table using the effective interest method to amortize the discount for these bonds. (Round all amounts to the nearest whole dollar.) Semiannual Interest Period-End Cash Interest Bond Interest Paid Expense Discount Amortization Unamortized Discount Carrying Value 01/01/2017 06/30/2017 12/31/2017 06/30/2018 12/31/2018 06/30/2019 12/31/2019 Total < Required 2

Answer 1

1
Discount	17693	=240000-222307
2
Total interest expense over life of bonds
6 payments of $ 10800	64800
Par value at maturity	240000
Total repaid	304800
Less: Amount borrowed	222307
Total bond interest expense	82493
3
Semiannual Interest period end	Cash interest paid	Bond interest expense	Discount amortization	Unamortized Discount	Carrying value
01/01/2017				17693	222307
06/30/2017	10800	13338	2538	15155	224845
12/31/2017	10800	13491	2691	12464	227536
06/30/2018	10800	13652	2852	9612	230388
12/31/2018	10800	13823	3023	6589	233411
06/30/2019	10800	14005	3205	3384	236616
12/31/2019	10800	14184	3384	0	240000
Total	64800	82493	17693
Workings:
Cash interest paid	10800	=240000*9%*6/12
Bond interest expense:
06/30/2017	13338	=222307*12%*6/12
12/31/2017	13491	=224845*12%*6/12
06/30/2018	13652	=227536*12%*6/12
12/31/2018	13823	=230388*12%*6/12
06/30/2019	14005	=233411*12%*6/12
12/31/2019	14184	=236616*12%*6/12