0 HW (15 pts) 2 Exercise 10-2 Straight-Line: Amortization of bond discount LO P2

Question

0 HW (15 pts) 2 Exercise 10-2 Straight-Line: Amortization of bond discount LO P2 Tano issues bonds with a par value of $180 000 on January 1 2017. The bonds annual contract rate is 8%, 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 10% and the bonds are sold for $170,862. 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare an amortization table using the straight-line method to amortize the discount for these ual Period- Unamortized 01/01/2017 06/30/2017 12/31/2017 06/30/2018 12/31/2018 06/30/2019 12/31/2019

Explanation / Answer

Ans. 1 Discount 9138 *Calculation : Par value - Issue price 180000 - 170862 9138 Ans. 2 Total bond interest expense over life of bonds: Amount Repaid: 6 payments of 7200 43200 Par value at maturity 180000 Total repaid 223200 Less: amount borrowed -170862 Total bond interest expense 52338 * 180000 * 8% * 6/12     = 7200 Ans.3 Semiannual Period end Unamortized discount Carrying value 1/1/2017 9138 170862 6/30/2017 7615 172385 12/31/2017 6092 173908 6/30/2018 4569 175431 12/31/2018 3046 176954 6/30/2019 1523 178477 12/31/2019 0 180000 6/30/2017 9138 - 1523 = 7615 ( * 1523   = 9138 / 6) 12/31/2017 7615 - 1523 =6092 6/30/2018 6092 - 1523 = 4569 12/31/2018 4569 - 1523 = 3046 6/30/2019 3046 - 1523 = 1523 12/31/2019 1523 - 1523 = 0 *Carrying value = 1/1/2017 Issue price 170862 6/30/2017 170862 + 1523 172385 12/31/2017 172385 + 1523 173908 6/30/2018 173908 + 1523 175431 12/31/2018 175431 + 1523 176954 6/30/2019 176954 + 1523 178477 12/31/2019 178477 + 1523 180000

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