Question

Stanford issues bonds dated January 1, 2017, with a par value of $258,000. 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 $244,471.
  

3. Prepare an amortization table using the effective interest method to amortize the discount for these bonds.

Answer 1

Semi-nnual Interest periods	Interest to be paid- 258000*3%	Interest expense to be reported- 4%* bond carrying value	Discount Amortisation (Interest paid-interest expenses)	Unamortised Discount -Starting discount- discount amortized	Bond carrying value (bond par value- discount)
Issue Date				$          13,529	$           244,471
30-Jun	$            7,740	$      9,778.84	$            2,039	$          11,490	$           246,510
31-Dec	$            7,740	$      9,860.39	$            2,120	$            9,370	$           248,630
30-Jun	$            7,740	$      9,945.21	$            2,205	$            7,165	$           250,835
31-Dec	$            7,740	$    10,033.42	$            2,293	$            4,871	$           253,129
30-Jun	$            7,740	$    10,125.15	$            2,385	$            2,486	$           255,514
31-Dec	$            7,740	$    10,220.56	$            2,481	$                     5	$           257,995