Question

Exercise 10-4 Straight-Line: Amortization of bond discount LO P2 Tano Company issues bonds with a par value of $81,000 on January 1, 2019. The bonds' annual contract rate is 6%, 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 8%, and the bonds are sold for $76,753. 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 Required Required 3 What is the amount of the discount on these bonds at issuance? Discount Required 1 Required 2 >

Answer 1

Solution 1:

Discount on bond = Face value - Issue price = $81000 - $76753 = $4,247

Solution 2:

Total bond interest expense Over life of bonds:
Amount Paid:
6 Payments of ($81,000*6%*6/12=$2430) each	$14,580
Par Value at maturity	$81,000
Total Repaid	$95,580
Less: Amount Borrowed	$76,753
Total Bond interest Expense	$18,827

Solution 3:

Semiannual period-End	Unamortized Discount	Carrying Value
01-01-2019	$4,247	$76,753
6/30/2019	$3,539	$77,461
12/31/2019	$2,831	$78,169
6/30/2020	$2,124	$78,877
12/31/2020	$1,416	$79,584
6/30/2021	$708	$80,292
12/31/2021	$0	$81,000