sues bonds with a par a e of S82 000 on nuary 1, 2016 The bonds annual o tract a

Question

sues bonds with a par a e of S82 000 on nuary 1, 2016 The bonds annual o tract ato s 7%, andin s paid sern annualy c dato of issuance is are sold lor $79.849. Tano e June 30 and Dacer ar 31. The bcnds ma re n three ears The annual market rate at the dato o iss aree is 8% and th@ bo s are sold for $79 1. What is the amount of the discount on these bonds at issuance? 2. How much lolal bond inlerest expense will be recogrized over the ie of these bonds? Bond Intereat Expenoo Over Lifo of payments o 3. Prepare an amortization tablo using the straight-ine methed to amortize the discount for these bonds. (Round your Internmediate calculadons to the nearest doliar amount.) 01/01 2010 00/30 2017 12/31 2017 00 30 2010 12 31 2018

Explanation / Answer

1 What is the amount of the discount on these bonds at issuance? Discount = Par value – Issue price = 82000-79849 =2151 2 How much total bond interest expense will be recognized over the life of these bonds? Total bond interest expense over the life of the bonds Amount repaid Six payments of (7%*82000)/2 = 28700 Par value at maturity         82000 Total repaid =                      110700 Less Amount Borrowed = 79849 Total bond interest expense= 30851 Semiannual Period-End Unamortized Discount Carrying Value 01/01/2016 2151 79849 06/30/2016 1792.5 80207.5 12/31/2016 1434 80566 06/30/2017 1075.5 80924.5 12/31/2017 717 81283 06/30/2018 358.5 81641.5 12/31/2018 0 82000 2151/6 = 358.5 Discount per period

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