Stanford issues bonds dated January 1, 2017, with a par value of $260,000. The b
ID: 2611361 • Letter: S
Question
Stanford issues bonds dated January 1, 2017, with a par value of $260,000. 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 $240,832.
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.
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. (Round all amounts to the nearest whole dollar.)
Discount $Explanation / Answer
Solution:(1): Calculation of the amount of discount on the bond:
Face value of the bond = $260,000
Sale value of the bond = $240,832
Therefore, the amount of discount on the bonds are
= Face value - sale value = 260000-240832 = $19,168
Solution:(2): Calculation of total bond interest expense to be recognised:
Amount repaid:. Amount($)
6 Payment of. $11,700. 70,200
Par value at maturity. 260,000
Total repaid(70200+260000). 330,200
Less: Amount borrowed. (240,832)
Total bond interest expense. 89,368
Solution:(3): Amortization table using effective interest method:
Semi-annual interest period end Cash Interest paid($) Bond interest expense($) Discount amortization ($) Unamortized discount($) Carrying value ($) 01/01/2017 19,168 240,832 06/30/2017 11,700 14,450 2,750 16,418 243,582 12/31/2017 11,700 14,615 2,915 13,503 246,497 06/30/2018 11,700 14,790 3,090 10,413 249,587 12/31/2018 11,700 14,975 3,275 7,138 252,862 06/30/2019 11,700 15,172 3,472 3,666 256,334 12/31/2019 11,700 15,366 3,666 0 260,000 Total 70,200 89,368 19,168Related Questions
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