Stanford issues bonds dated January 1, 2017, with a par value of $245,000. The b

Question

Stanford issues bonds dated January 1, 2017, with a par value of $245,000. 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 $226,938. 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 an amortization table using the effective interest method to amortize the discount for these bonds. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required3 Prepare an amortization table using the effective interest method to amortize the discount for these bonds. (Round all amounts to the nearest whole dollar.) Cash Interest Bond InterestDiscount Unamortized Interest Carrying Value Paid Expense Amortization Discount Period-End 01/01/2017 06/30/2017 12/31/2017 06/30/2018 12/31/2018 06/30/2019 12/31/2019 Total Required 2 Required 3

Explanation / Answer

1-

amount of discount on issuance

245000-226938

18062

2-

amount of total interest expense

sum of bond interest expense

84225

3-

bond amortization table

semiannual interest period

cash interest paid =245000*4.5%

bond interest expense = carrying value*6%

discount amortization = interest expense-cash interest paid

unamortized discount = unamortized balance-discount amortization

carrying value = carrying amount+ discount amortization

jan 1 2017

18062

226938

30-Jun

11025

13616

2591

15471

229529

31-Dec

11025

13772

2747

12724

232276

june 30 2018

11025

13937

2912

9812

235188

31-Dec

11025

14111

3086

6726

238274

june 30 2019

11025

14296

3271

3455

241545

dec 31 2019

11025

14493

3455

0

245000

total

66150

84225

18062

amount of total interest expense

sum of bond interest expense

84225

1-

amount of discount on issuance

245000-226938

18062

2-

amount of total interest expense

sum of bond interest expense

84225

3-

bond amortization table

semiannual interest period

cash interest paid =245000*4.5%

bond interest expense = carrying value*6%

discount amortization = interest expense-cash interest paid

unamortized discount = unamortized balance-discount amortization

carrying value = carrying amount+ discount amortization

jan 1 2017

18062

226938

30-Jun

11025

13616

2591

15471

229529

31-Dec

11025

13772

2747

12724

232276

june 30 2018

11025

13937

2912

9812

235188

31-Dec

11025

14111

3086

6726

238274

june 30 2019

11025

14296

3271

3455

241545

dec 31 2019

11025

14493

3455

0

245000

total

66150

84225

18062

amount of total interest expense

sum of bond interest expense

84225

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