Stanford issues bonds dated January 1. 2015, with a par value of $244,000. The b

Question

Stanford issues bonds dated January 1. 2015, with a par value of $244,000. The bonds' annual contract rate is 10%, 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 $232,011. What is the amount of the discount on these bonds at issuance? How much total bond interest expense will be recognized over the life of these bonds? Prepare an Amortization table using the effective interest method to amortize the discount for these bonds. (Enter all amounts positive values. Round all amounts to the nearest whole dollar.)

Explanation / Answer

Bond Details Amt $ Bond Par value                244,000 Bond Isuue Price                232,011 Bond Discount                  11,989 Semi Annual interest payment @5%=                12,200 Bond Life in years                           3 Total Interest payable in 6 half years=                73,200        1 Amount of discount on the bond =$11,989        2 Total Interest Expense Total Interest payable                73,200 Maturity value payable              244,000 Total Amount payable till maturity=              317,200 Less : Amount Received while issued=           (232,011) Total Interest Expense                85,189        3 Bond Amortization schedule Semi annual period Interest Payable Interest Expense @6% on Carrying value Amortization of Expense Unamortized Discount Bond Payable Carrying Value of Bond Jan 1. 2015.            11,989           244,000          232,011 Jun 30.2015.                12,200                     13,921                   1,721            10,268           244,000          233,732 Dec 31.2015.                12,200                     14,024                   1,824              8,444           244,000          235,556 June 30.2016.                12,200                     14,133                   1,933              6,511           244,000          237,489 Dec 31.2016.                12,200                     14,249                   2,049              4,462           244,000          239,538 June 30.2017.                12,200                     14,372                   2,172              2,289           244,000          241,711 Dec 31.2017.                12,200                     14,503                   2,290                    (0)           244,000          244,000

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