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 discount on these bond

Par value of bond

  Less: Issue price of bond

$82,000

$79,849

(2) Calculation of Bond interest Expense over the life of bond:

Total Repaid - Amount Borrowed

(Interest payment for 3 years + Par value at maturity) - Amount borrowed

[($82,000 * 7%*1/2 * 6) + $82,000] - $79,849

$19,371

(III) Amortization Table

Discount amortized semiannually = $2,151/6 =$359

Par value of bond

  Less: Issue price of bond

$82,000

$79,849

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