Tano issues bonds with a par value of $82,000 on January 1, 2017. The bonds’ ann

Question

Tano issues bonds with a par value of $82,000 on January 1, 2017. The bonds’ annual contract rate is 7%, 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 8%, and the bonds are sold for $79,849. 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. What is the amount of the discount on these bonds at issuance?

Explanation / Answer

1. Amount of the discount on these bonds at issuance is difference between Bond par value and bond issue price.

(82,000-79,849.1) = 2,150.9

2. Total bond interest expense recognized over the life of these bonds is:

$19,371

3. Amortization table using the straight-line method to amortize the discount for these bonds is as prepared below:

A B C D E Semiannual Interest Period Cash Interest Paid Bond Interest Expense Discount amortization Discount Carrying Value at end of period 82,000*7%*6/12 A+C 2,150.9/6 E-C 0 $ 2,150.90 $79,849.10 1 $2,870 $3,228 $358.5 $1,792 $80,208 2 $2,870 $3,228 $358.5 $1,434 $80,566 3 $2,870 $3,228 $358.5 $1,075 $80,925 4 $2,870 $3,228 $358.5 $717 $81,283 5 $2,870 $3,228 $358.5 $358 $81,642 6 $2,870 $3,228 $358.5 ($0) $82,000 $17,220 $19,371 $2,150.9

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