home / study / questions and answers / business / accounting / (straight-line: a

Question

home / study / questions and answers / business / accounting / (straight-line: amortization of bond discount) ...

Your question has been answered! Rate it below.

Let us know if you got a helpful answer.

Question

(Straight-Line: Amortization of bond discount)

Tano issues bonds with a par value of $180,000 on January 1, 2015. The bond's 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 issunace?

2. How much total bond interest expense will be recognized over the life of these bonds?

3. Prepare an amortization table for these bonds; use the straight-line method to amortize the discount. The table should list the following: Semiannual Period-End, Unamortized Discout*, Carrying Value for each year.

Explanation / Answer

Answer:1

Discount = Par value – Issue price

=$180000-$170862

=$9138

Answer:2 Total inflow $170,862
Total outflow over the life of the bonds = ($180,000 x 8% x 3 yrs) + $180,000 = 223,200
Total bond interest is the difference, so = 223200-170862 = $52,338.

Answer:3

Semiannual Period-End Unamortized Discount Carrying Value 01/01/2013 $9,138 $170,862 06/30/2013 $7,615 $172,385 12/31/2013 $6,092 $173,908 06/30/2014 $4,569 $175,431 12/31/2014 $3,046 $176,954 06/30/2015 $1,523 $178,477 12/31/2015 $0 $180,000

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

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