Question

Homework 20 Saved Tano Company issues bonds with a par value of $97,000 on January 1, 2019. 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 $92,234. 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 a straight-line 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 2 >

Answer 1

Answer 1.

Face Value = $97,000
Issue Value = $92,234

Discount on Bonds = Face Value - Issue Value
Discount on Bonds = $97,000 - $92,234
Discount on Bonds = $4,766

Answer2.

Annual Coupon Rate = 10.00%
Semiannual Coupon Rate = 5.00%
Semiannual Coupon = 5.00% * $97,000
Semiannual Coupon = $4,850

Time to Maturity = 3 years
Semiannual Period = 6

61 Total bond interest expense over life of bonds: Amount repaid: 6 payments of Par value at maturity Total repaid Less: amount borrowed Total bond interest expense 29100 97000 126100 92234 33866

Answer 3.

Semiannual Amortization of Discount = Discount on Bonds / Semiannual Period
Semiannual Amortization of Discount = $4,766 / 6
Semiannual Amortization of Discount = $794

Carrying Value Semiannual Period End 01/01/2019 06/30/2019 12/31/2019 06/30/2020 12/31/2020 06/30/2021 12/31/2021 Unamortized Discount 4766 3972 3178 2384 1590 796 0 92234 93028 93822 94616 95410 96204 97000