Stanford issues bonds dated January 1, 2021, with a par value of $500,000. The bonds annual contract
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Stanford issues bonds dated January 1, 2021, with a par value of $500,000. 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 $463,140.
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 effective interest amortization table like Exhibit 14B.1 for these bonds.
Exhibit 14B.1
Transcribed Image Text:
EXHIBIT 14B.1 Bonds: $100,000 Par Value, Semiannual Interest Payments, Two-Year Life, 4% Semiannual Contract Rate, 5.0155% Semiannual Market Rate Effective Interest (A) (B) (C) (D) (E) Amortization of Cash Bond Bond Discount Semiannual Interest Interest Discount Unamortized Carrying Interest Paid Expense Amortization Discount Value Carrylng value Period-End 4% x $100,000 5.0155% x Prior (E) (B) – (A) Prior (D) - (C) $100,000- (D) $100,000 (0) 12/31/2021 $3,600 $ 96,400 $99.033 $98,112 S97235 $96,400 (1) 6/30/2022 $4,000 $ 4,835 $ 835 2,765 97,235 (2) 12/31/2022 4,000 4,877 877 1,888 98,112 (3) 6/30/2023 4,000 4,921 921 967 99,033 (4) 12/31/2023 4,000 4,967 967 100,000 12/31/23 $16,000 $19,600 $3,600 Column (A) is the par value ($100,000) multiplied by the semiannual contract rate (4%). Column (B) is the prior period's carrying value multiplied by the semiannual market rate (5.0155%). Column (C) is the difference between interest paid and bond interest expense, or [(B) – (A)]. Column (D) is the prior period's unamortized discount less the current period's discount amortization. Column (E) is the par value less unamortized discount, or [$100,000 – (D)]. 12/31/21 6/30/22 12/31/22 6/30/23
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