Exercise 102 StraightLine Amortization of bond discount LO P

Exercise 10-2 Straight-Line: Amortization of bond discount LO P2 Tano issues bonds with a par value of $93,000 on January 1, 2017, The bonds, annual contract rate is 7%, and interest is pald 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 $90,561 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 stralght-line method to amortize the discount for these bonds. Complete this question by entering your answers in the tabs below. Required 1Required 2Required 3 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

Solution

1) Par value of the bonds $         93,000 Sale price of the bonds $         90,561 Discount on issue of the bonds (93000-90561) $           2,439 2) Total interest payable = 93000*7%*3 = $         19,530 Discount on bonds payable $           2,439 Total interest expense $         21,969 3) AMORTIZATION TABLE: Semi-annual period end Unamortized Carrying Discount Value 1/1/2017 $           2,439 $       90,561 6/30/2017 $           2,033 $       90,968 12/31/2017 $           1,626 $       91,374 6/30/2018 $           1,220 $       91,781 12/31/2018 $               813 $       92,187 6/30/2019 $               407 $       92,594 12/31/2019 $                  -   $       93,000