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
• Required 2
• Required 3

What is the amount of the discount on these bonds at issuance?

	Discount

How much total bond interest expense will be recognized over the life of these bonds?

	Total Bond Interest Expense Over Life of Bonds: Amount repaid: payments of Par value at maturity Total repaid Less amount borrowed Total bond interest expense

Prepare an amortization table using the straight-line method to amortize the discount for these bonds. (Round your intermediate calculations to the nearest dollar amount.)

	Semiannual Period-End 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

Answer 1

Answer 1.

Face Value = $92,000
Proceed from Issuance = $87,480

Discount on Bonds Payable = Face Value - Proceed from Issuance
Discount on Bonds Payable = $92,000 - $87,480
Discount on Bonds Payable = $4,520

Answer 2.

Annual Coupon Rate = 10.00%
Semiannual Coupon Rate = 5.00%
Semiannual Coupon = $92,000 * 5.00%
Semiannual Coupon = $4,600

Semiannual Periods = 6 (3 years)

Total Bond Interest Expense Over Life of Bonds: Amount repaid: 6 payments of 4600 Par value at maturity Total repaid Less: amount borrowed Total bond interest expense 27600 92000 119600 87480 32120

Answer 3.

Semiannual Discount Amortization = Discount on Bonds Payable / Semiannual Periods
Semiannual Discount Amortization = $4,520 / 6
Semiannual Discount Amortization = $753

Semiannu Unamortized Period End 01/01/2017 06/30/2017 12/31/2017 3014 06/30/2018 12/31/2018 06/30/2019 12/31/2019 Carrying Value 87480 88233 88986 89739 90492 91245 92000 Discount 4520 3767 2261 1508 755 0