Welch issues bonds dated January 1, 2011 with a par value of $250,000. The bonds

Question

Welch issues bonds dated January 1, 2011 with a par value of $250,000. The bonds' annual contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The bonds mature in 3 years. The annual market rate at the date of issuance is 10%, and bonds are sold for $85,431.

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. Use the effective interest method to amortize the discount

Explanation / Answer

1. (250000-85431)/250000 % = 65.8276 % on par value. 2. 250000*9%*3 = 67500 3. need present value for this.

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