Question

M06 Ch 10 Homework 6 Saved Stanford Issues bonds dated January 1, 2017, with a par value of $256.000. 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 $243,421 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 effective Interest method to amortize the discount for these bonds. points 8 01:35:26 Complete this question by entering your answers in the tabs below. eBook Required 1 Required 2 Required 3 What is the amount of the discount on these bonds at issuance? Discount Required 2 >

Answer 1

Answer to Requirement 1:

Face Value of Bonds = $256,000
Issue Value of Bonds = $243,421

Discount on Bonds = Face Value of Bonds - Issue Value of Bonds
Discount on Bonds = $256,000 - $243,421
Discount on Bonds = $12,579

Answer to Requirement 2:

Annual Coupon Rate = 10.00%
Semiannual Coupon Rate = 5.00%
Semiannual Coupon = 5.00% * $256,000
Semiannual Coupon = $12,800

Time to Maturity = 3 years
Semiannual Period = 6

Total bond interest expense over life of bonds: Amount repaid: 6 payments of $ 12,800 Par value at maturity Total repaid Less: amount borrowed Total bond interest expense $ $ $ $ $ 76,800 256,000 332,800 243,421 89,379

Answer to Requirement 3:

Annual Interest Rate = 12.00%
Semiannual Interest Rate = 6.00%

Semiannual | Cash Interest | Bond Interest | Discount Unamortized Carrying Value Period End Paid Expense Amortization Premium 01/01/2017 $ 12,579 $ 243,421 06/30/2017 $ 12,800 $ 14,605 $ 1,805 $ 10,774 $ 245,226 12/31/2017 $ 12,800 $ 14,714 $ 1,914 $ 8,860 $ 247,140 06/30/2018 $ 12,800 $ 14,828 $ 2,028 $ 6,832 $ 249,168 12/31/2018 $ 12,800 $ 14,950 $ 2,150 $ 4,682 $ 251,318 06/30/2019 $ 12,800 $ 15,079 $ 2,279 $ 2,403 $ 253,597 12/31/2019 $ 12,800 $ 15,203 $ 2,403 $ - $ 256,000 Total $ 76,800 $ 89,379 $ 12,579