Tano issues bonds with a par value of $88,000 on January 1, 2015. The bonds’ ann

Question

Tano issues bonds with a par value of $88,000 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 $83,676. 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

Total bond interest is the difference, so = (114,400 – 83,676) = $30,724.

Another way of arriving at this is as follows:
Total interest over the life = $880,000 x 8% x 3 yrs = $26,400
plus the bond discount $4,324 = $30,724

3. Amortization Schedule :

Semiannual Period-End Unamortized Discount Amortized Discount Carrying Value 1/1/2015 $4,324 $0 $83,676 6/30/2015 $3,603 $721 $84,397 12/31/2015 $2,162 $1,441 $85,838 6/30/2016 $0 $2,162 $88,000

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