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 $180,000 on January 1, 2013. The bonds\' annual contract rate is 8% and interest is paid semiannualy on June 30 and December 31. The bonds mature in throo years. The annual market rate at the date of issuance is 10%, and the bonds are sold for S 170882. 1. What is the amount of the discount on these bonds at issuance? s 9,138 2. How much total bond interest expense will be recognized over the life of these bonds? l bond interest expense over life of bonds: Amount repaid: 72000payments of 6° S S 6 43.200 - 180,000 223,200 170,862 52,338 Par value at maturity Total repaid Less amount borrowed Total bond interest expense 3. Use the straight-ine method to amortize the discount for these bonds Semiannual Unamortized Carrying Perlod-End 01/01/2013 06/30/2013 12/31/2013 06/30/2014 12/31/2014 06/30/2015 12/31/2015 Discount 01/012013 9318 s 170.862 7,615172,385 602173,908 4569 175,431 046176,954 1,523 3 178,477 0 S 180,000

Solution

Solution:

5-3) Completing the below table to calculate the total bond interest expense to be recognized over the bonds\' life:

5) Preparing the Journal Entries to Record the First Two Interest Payments:

Total bond interest expense over life of bonds:
Amount repaid:
30	Payments of	$120,000	$3,600,000
Par value at maturity	$4,000,000
Total repaid	$7,600,000
Less: Amount borrowed	($3,456,448)
Total bond interest expense	$4,143,552