Moss issues bonds with a par value of $98,000 on January 1, 2011. The bonds’ ann
ID: 2461126 • Letter: M
Question
Moss issues bonds with a par value of $98,000 on January 1, 2011. The bonds’ annual contract rate is 7%, 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 $90,537.
What is the amount of the discount on these bonds at issuance? (Omit the "$" sign in your response.)
How much total bond interest expense will be recognized over the life of these bonds? (Omit the "$" sign in your response.)
Use the straight-line method to amortize the discount for these bonds. (Make sure that the unamortized discount is adjusted to "0" and the carrying value equals to face value of the bond in the last period. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)
Moss issues bonds with a par value of $98,000 on January 1, 2011. The bonds’ annual contract rate is 7%, 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 $90,537.
Explanation / Answer
1. Amount of discount on bond issuance = Face Value - Issue price
= $98000 - $90537 = $7463
2. Total bond interest expense to be recognized over life of bond = interest on bonds + discount expense
Bond Interest = $98000 * 7% * 3 = $20580
Discount Expense = $7463
Total bond interest expense to be recognized over life of bond = $20580 + $7463 = $28043
3. Carrying VAlue of Bond = Face VAlue - Unamortized Discount
Semi annual period Unamortized discount (Amt in $) Carrying Value(Amt in $) 1/01/2011 7463 90537 6/30/2011 6219 91781 12/31/2011 4975 93025 6/30/2012 3731 94269 12/31/2012 2487 95513 6/30/2013 1243 96757 12/31/2013 0 98000Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.