Tano issues bonds with a par value of $92,000 on January 1, 2015. The bonds’ ann

Question

Tano issues bonds with a par value of $92,000 on January 1, 2015. 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 $87,480.

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 using the straight-line method to amortize the discount for these bonds. (Round your intermediate calculations to the nearest dollar amount.)

Explanation / Answer

1) Amount of Discount= $92,000-$87,480=$4,520

2) Total bond interest that will be recognised over the life of these bonds= $92,000*10%*3years= $27,600

3)

Amortisation Schedule Date Particulars Amounts Date Particulars Amount 31-Dec-2015 To P& L A/c 1,506.67 01- Jan-2015 By Discount on Bonds 4,520 31-Dec-2015 To Balance c/d 3,013.33 31-Jan-2016 To P & L A/c 1506.67 01-Jan-2016 By Balance B/f 3013.33 31-Jan 2016 To Balance c/d 1506.67 31-Dec-2017 To P& L A/c 1506.67 01-Jan-2017 By Balance B/f 1506.67

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