Exercise 10-2 Straight-Line: Amortization of bond discount LO P2 Tano issues bon

Question

Exercise 10-2 Straight-Line: Amortization of bond discount LO P2 Tano issues bonds with a par value of $180,000 on January 1, 2016. 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

Explanation / Answer

(i) Amount of discount on these bond

Discount = Par value - Issue price

Discount = $180,000 - $170,862

Discount = $9,138

(ii) Total bond interest expense over the life of bond

Total Repaid - Amount Borrowed

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

[($180,000 * 8%*1/2 * 6) + $180,000] - $170,862

$52,338

(iii) Amortization table

S.No Semiannual Period - End Unamortized Discount Carriying Value 0 01/01/2016 $9,138 $170,862 1 06/30/2016 $7,165 $172,385 2 12/31/2016 $6,092 $173,908 3 06/30/2017 $4,569 $175,431 4 12/31/2017 $3,046 $176,954 5 06/30/2018 $1,523 $178,477 6 12/31/2018 0 $180,000

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.