Question

gnment Saved Exercise 10-2 Straight-Line: Amortization of bond discount LO P2 Tano Issues bonds with a par value of $93,000 on January 1, 2017. The bonds' annual contract rate Is 7% , and interest is pald semlannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 8% and the bonds are sold for $90,561 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 Iife 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. Reapired 1 Required 2 Required 3 What is the amount of the discount on these bonds at issuance? Discount Required 1 Required 2

Answer 1

Answer 1.

Par Value of Bonds = $93,000
Issue Value of Bonds = $90,561

Discount on Issuance = Par Value of Bonds - Issue Value of Bonds
Discount on Issuance = $93,000 - $90,561
Discount on Issuance = $2,439

Answer 2.

Annual Coupon Rate = 7.00%
Semiannual Coupon Rate = 3.50%
Semiannual Coupon = 3.50% * $93,000
Semiannual Coupon = $3,255

Time to Maturity = 3 years
Semiannual Period = 6

|Total bond interest expense over life of bonds: Amount repaid: 6 payments of 3255 19530 Par value at maturity Total repaid Less: amount borrowed Total bond interest expense 93000 112530 90561 21969

Answer 3.

Semiannual Amortization of Discount = Discount on Issuance / Semiannual Period
Semiannual Amortization of Discount = $2,439 / 6
Semiannual Amortization of Discount = $407

Semiannual Unamortized Carrying Value Period End 01/01/2017 06/30/2017 Discount 2439 90561 2032 90968 12/31/2017 06/30/2018 12/31/2018 06/30/2019 12/31/2019 1625 91375 1218 91782 811 92189 407 92593 0 93000