Tano issues bonds with a par value of S 7,000 on January 1, 2016. The bonds\' an
ID: 2552020 • Letter: T
Question
Tano issues bonds with a par value of S 7,000 on January 1, 2016. The bonds' annual contract rate is 7%, and interest is a se annual on June 30 and December 31 . The bonds mature in three years The annual market rate at the date of issuance is 10%, and the bonds are sold for $80,375 1. What is the amount of the discount on these bonds at issuance? 2. How much total bond interest expense will be recognized over the life of these bonds? Total Bond Interest Expense Over Life of Bonds Amount repaid. payments of Par value at maturity Total repaid Less amount borrowed Total bond interest expense 3. Prepare an amortization table using the straight line method to amortize the discount for these bonds. (Round your intermediate calculations to the nearest dollar amount.) Semiannual Period- Unamortized Carrying Value End -Discount 01/01/2016 06/30/2016 12/31/2016 06/30/2017 12/31/2017 06/30/2018 12/31/2018 6,625$ 80,375 81.479 82,583 83,688 85,896 87,001 S 87,000Explanation / Answer
Answer:
1
What is the amount of the discount on these bonds at issuance?
Discount
6625
(87000-80375)
______________________________________
2
How much total bond interest expense will be recognized over the life of these bonds?
Semmiannual Payment
=87000*7%*6/12
=3045
Total bond interest expense over life of bonds:
Amount repaid:
6
payments of
$3,045
18270
Par value at maturity
87,000
Total repaid
105270
Less amount borrowed
-80,375
Total bond interest expense
24,895
____________________________________
3
Straight-line amortization table
Semiannual period
end
Unamortized
discount
Carrying
value
1/1/2016
6625
80375
6/30/2016
5521
81479
12/31/2016
4417
82583
6/30/2017
3312
83688
12/31/2017
2208
84792
6/30/2018
1104
85896
12/31/2018
0
87000
Discount
6625
(87000-80375)
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