Question

Tano Company issues bonds with a par value of $96,000 on January 1, 2019. The bonds' annual contract rate is 9%, 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 12%, and the bonds are sold for $88,923. 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 a straight-line amortization table for these bonds. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the amount of the discount on these bonds at issuance? Discount < Required 1 Required 2 >

Answer 1

a) Discount = 96000-88923 = 7077

b) Calculate interest expense

Total bond interest expense over life of bonds
Amount repaid
6 payment of 4320	25920
Par value of maturity	96000
total repaid	121920
Less: Amount borrowed	-88923
Total bond interest expense	32997

c) Amortization table

Semiannual period end	Unamortized discount	Carrying value
01/01/2019	7077	88923
06/30/20190	5897	90103
12/31/2019	4717	91283
06/30/2020	3537	92463
12/31/2020	2357	93643
06/30/2021	1177	94823
12/31/2021	0	96000