Issue of bond at discount: When the coupon rate or contract rate of a bond is lower than the market interest rate, the bond is being issued at discount. The selling price of the bond will be lower than the face value of the bond under issue of bond at discount. Straight Line Method Amortization of discount: Under straight line amortization method, a specific amount of discount is amortized each period till its maturity period. The period ending amortization amount is computed by dividing the total discount by the number of periods in maturity of the bonds payable. To determine : 1. Compute the amount of the discount on these bonds at issuance 2. Compute the total bond interest recognized over the life of these bonds 3. Preparation of amortization table using the straight line method to amortize the discount.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 14, Problem 2E

To determine

Issue of bond at discount:

When the coupon rate or contract rate of a bond is lower than the market interest rate, the bond is being issued at discount. The selling price of the bond will be lower than the face value of the bond under issue of bond at discount.

Straight Line Method Amortization of discount:

Under straight line amortization method, a specific amount of discount is amortized each period till its maturity period. The period ending amortization amount is computed by dividing the total discount by the number of periods in maturity of the bonds payable.

To determine:

1. Compute the amount of the discount on these bonds at issuance

2. Compute the total bond interest recognized over the life of these bonds

3. Preparation of amortization table using the straight line method to amortize the discount.

Expert Solution & Answer

Answer to Problem 2E

Solution:

1. The amount of $9,138 is discounted on issue of the bonds.

2. The total bond interest expense recognized over the life of these bonds is $52,338.

3.

Period Ending	Unamortized Discount	Carrying Value
01/1/2017	$9,138	$170,862
06/30/2017	$7,615	$172,385
12/31/2017	$6,092	$173,908
06/30/2018	$4,569	$175,431
12/31/2018	$3,046	$176,954
06/30/2019	$1,523	$178,477
12/31/2019	0	$180,000
Total

Explanation of Solution

Explanation:

1. Computation of Discount on bonds issuance

$\begin{array}{l} D i s c o u n t o n B o n d s P a y a b l e = B a n d s P a r V a l u e - B o n d s I s s u e P r i c e \\ = $ 180, 000 - $ 170, 862 \\ = $ 9, 138 \end{array}$

2

Computation of total interest expense
Amount to be repaid at maturity:
Total Interest Payment	$43,200
Par Value of Bonds	$180,000
Total amount to be repaid	$223,200
Less : Selling Price of the Bonds	$170,862

Total Bond Interest Expense	$52,338

$\begin{array}{l} * I n t e r e s t P a y m e n t = $ 7, 200 X 6 = $ 43, 200 \\ * S e m i a n n u a l I n t e r e s t P a y m e n t = $ 180, 000 X 0.04 = $ 7, 200 \end{array}$

3.

$\begin{array}{l} S e m i a n n u a l D i s c o u n t A m o r t i z e d = \frac{D i s c o u n t o n B o n d s P a y a b l e}{N u m b e r o f P e r i o d s} \\ = \frac{$ 9, 138}{6 p e r i o d s} \\ = $ 1, 523 \end{array}$

Conclusion

Conclusion:

Tano issued the bonds at $170,862 with a discount of $9,138 which is amortized over the life of bonds at $1,523 per period. The total interest expense to be recognized over the issued bonds is $52,338.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Namita's Salon purchased equipment for $12,000 on January 1. The equipment has an estimated useful life of 5 years and a salvage value of $2,000. Calculate the annual depreciation expense using the straight-line method and the book value at the end of year 3. Need answer

I need assistance with this financial accounting problem using appropriate calculation techniques.

If Safeway needs to make a 22% profit from 480 shillings, what price should they place on their goods?

Answer 2

Question

Chapter 14, Problem 2E

To determine

Issue of bond at discount:

When the coupon rate or contract rate of a bond is lower than the market interest rate, the bond is being issued at discount. The selling price of the bond will be lower than the face value of the bond under issue of bond at discount.

Straight Line Method Amortization of discount:

Under straight line amortization method, a specific amount of discount is amortized each period till its maturity period. The period ending amortization amount is computed by dividing the total discount by the number of periods in maturity of the bonds payable.

To determine:

1. Compute the amount of the discount on these bonds at issuance

2. Compute the total bond interest recognized over the life of these bonds

3. Preparation of amortization table using the straight line method to amortize the discount.

Expert Solution & Answer

Answer to Problem 2E

Solution:

1. The amount of $9,138 is discounted on issue of the bonds.

2. The total bond interest expense recognized over the life of these bonds is $52,338.

3.

Period Ending	Unamortized Discount	Carrying Value
01/1/2017	$9,138	$170,862
06/30/2017	$7,615	$172,385
12/31/2017	$6,092	$173,908
06/30/2018	$4,569	$175,431
12/31/2018	$3,046	$176,954
06/30/2019	$1,523	$178,477
12/31/2019	0	$180,000
Total

Explanation of Solution

Explanation:

1. Computation of Discount on bonds issuance

$\begin{array}{l} D i s c o u n t o n B o n d s P a y a b l e = B a n d s P a r V a l u e - B o n d s I s s u e P r i c e \\ = $ 180, 000 - $ 170, 862 \\ = $ 9, 138 \end{array}$

2

Computation of total interest expense
Amount to be repaid at maturity:
Total Interest Payment	$43,200
Par Value of Bonds	$180,000
Total amount to be repaid	$223,200
Less : Selling Price of the Bonds	$170,862

Total Bond Interest Expense	$52,338

$\begin{array}{l} * I n t e r e s t P a y m e n t = $ 7, 200 X 6 = $ 43, 200 \\ * S e m i a n n u a l I n t e r e s t P a y m e n t = $ 180, 000 X 0.04 = $ 7, 200 \end{array}$

3.

$\begin{array}{l} S e m i a n n u a l D i s c o u n t A m o r t i z e d = \frac{D i s c o u n t o n B o n d s P a y a b l e}{N u m b e r o f P e r i o d s} \\ = \frac{$ 9, 138}{6 p e r i o d s} \\ = $ 1, 523 \end{array}$

Conclusion

Conclusion:

Tano issued the bonds at $170,862 with a discount of $9,138 which is amortized over the life of bonds at $1,523 per period. The total interest expense to be recognized over the issued bonds is $52,338.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 14, Problem 2E

To determine

Issue of bond at discount:

When the coupon rate or contract rate of a bond is lower than the market interest rate, the bond is being issued at discount. The selling price of the bond will be lower than the face value of the bond under issue of bond at discount.

Straight Line Method Amortization of discount:

Under straight line amortization method, a specific amount of discount is amortized each period till its maturity period. The period ending amortization amount is computed by dividing the total discount by the number of periods in maturity of the bonds payable.

To determine:

1. Compute the amount of the discount on these bonds at issuance

2. Compute the total bond interest recognized over the life of these bonds

3. Preparation of amortization table using the straight line method to amortize the discount.

Expert Solution & Answer

Answer to Problem 2E

Solution:

1. The amount of $9,138 is discounted on issue of the bonds.

2. The total bond interest expense recognized over the life of these bonds is $52,338.

3.

Period Ending	Unamortized Discount	Carrying Value
01/1/2017	$9,138	$170,862
06/30/2017	$7,615	$172,385
12/31/2017	$6,092	$173,908
06/30/2018	$4,569	$175,431
12/31/2018	$3,046	$176,954
06/30/2019	$1,523	$178,477
12/31/2019	0	$180,000
Total

Explanation of Solution

Explanation:

1. Computation of Discount on bonds issuance

$\begin{array}{l} D i s c o u n t o n B o n d s P a y a b l e = B a n d s P a r V a l u e - B o n d s I s s u e P r i c e \\ = $ 180, 000 - $ 170, 862 \\ = $ 9, 138 \end{array}$

2

Computation of total interest expense
Amount to be repaid at maturity:
Total Interest Payment	$43,200
Par Value of Bonds	$180,000
Total amount to be repaid	$223,200
Less : Selling Price of the Bonds	$170,862

Total Bond Interest Expense	$52,338

$\begin{array}{l} * I n t e r e s t P a y m e n t = $ 7, 200 X 6 = $ 43, 200 \\ * S e m i a n n u a l I n t e r e s t P a y m e n t = $ 180, 000 X 0.04 = $ 7, 200 \end{array}$

3.

$\begin{array}{l} S e m i a n n u a l D i s c o u n t A m o r t i z e d = \frac{D i s c o u n t o n B o n d s P a y a b l e}{N u m b e r o f P e r i o d s} \\ = \frac{$ 9, 138}{6 p e r i o d s} \\ = $ 1, 523 \end{array}$

Conclusion

Conclusion:

Tano issued the bonds at $170,862 with a discount of $9,138 which is amortized over the life of bonds at $1,523 per period. The total interest expense to be recognized over the issued bonds is $52,338.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 14, Problem 2E

To determine

Issue of bond at discount:

When the coupon rate or contract rate of a bond is lower than the market interest rate, the bond is being issued at discount. The selling price of the bond will be lower than the face value of the bond under issue of bond at discount.

Straight Line Method Amortization of discount:

Under straight line amortization method, a specific amount of discount is amortized each period till its maturity period. The period ending amortization amount is computed by dividing the total discount by the number of periods in maturity of the bonds payable.

To determine:

1. Compute the amount of the discount on these bonds at issuance

2. Compute the total bond interest recognized over the life of these bonds

3. Preparation of amortization table using the straight line method to amortize the discount.

Expert Solution & Answer

Answer to Problem 2E

Solution:

1. The amount of $9,138 is discounted on issue of the bonds.

2. The total bond interest expense recognized over the life of these bonds is $52,338.

3.

Period Ending	Unamortized Discount	Carrying Value
01/1/2017	$9,138	$170,862
06/30/2017	$7,615	$172,385
12/31/2017	$6,092	$173,908
06/30/2018	$4,569	$175,431
12/31/2018	$3,046	$176,954
06/30/2019	$1,523	$178,477
12/31/2019	0	$180,000
Total

Explanation of Solution

Explanation:

1. Computation of Discount on bonds issuance

$\begin{array}{l} D i s c o u n t o n B o n d s P a y a b l e = B a n d s P a r V a l u e - B o n d s I s s u e P r i c e \\ = $ 180, 000 - $ 170, 862 \\ = $ 9, 138 \end{array}$

2

Computation of total interest expense
Amount to be repaid at maturity:
Total Interest Payment	$43,200
Par Value of Bonds	$180,000
Total amount to be repaid	$223,200
Less : Selling Price of the Bonds	$170,862

Total Bond Interest Expense	$52,338

$\begin{array}{l} * I n t e r e s t P a y m e n t = $ 7, 200 X 6 = $ 43, 200 \\ * S e m i a n n u a l I n t e r e s t P a y m e n t = $ 180, 000 X 0.04 = $ 7, 200 \end{array}$

3.

$\begin{array}{l} S e m i a n n u a l D i s c o u n t A m o r t i z e d = \frac{D i s c o u n t o n B o n d s P a y a b l e}{N u m b e r o f P e r i o d s} \\ = \frac{$ 9, 138}{6 p e r i o d s} \\ = $ 1, 523 \end{array}$

Conclusion

Conclusion:

Tano issued the bonds at $170,862 with a discount of $9,138 which is amortized over the life of bonds at $1,523 per period. The total interest expense to be recognized over the issued bonds is $52,338.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 14, Problem 2E

To determine

Issue of bond at discount:

When the coupon rate or contract rate of a bond is lower than the market interest rate, the bond is being issued at discount. The selling price of the bond will be lower than the face value of the bond under issue of bond at discount.

Straight Line Method Amortization of discount:

Under straight line amortization method, a specific amount of discount is amortized each period till its maturity period. The period ending amortization amount is computed by dividing the total discount by the number of periods in maturity of the bonds payable.

To determine:

1. Compute the amount of the discount on these bonds at issuance

2. Compute the total bond interest recognized over the life of these bonds

3. Preparation of amortization table using the straight line method to amortize the discount.

Expert Solution & Answer

Answer to Problem 2E

Solution:

1. The amount of $9,138 is discounted on issue of the bonds.

2. The total bond interest expense recognized over the life of these bonds is $52,338.

3.

Period Ending	Unamortized Discount	Carrying Value
01/1/2017	$9,138	$170,862
06/30/2017	$7,615	$172,385
12/31/2017	$6,092	$173,908
06/30/2018	$4,569	$175,431
12/31/2018	$3,046	$176,954
06/30/2019	$1,523	$178,477
12/31/2019	0	$180,000
Total

Explanation of Solution

Explanation:

1. Computation of Discount on bonds issuance

$\begin{array}{l} D i s c o u n t o n B o n d s P a y a b l e = B a n d s P a r V a l u e - B o n d s I s s u e P r i c e \\ = $ 180, 000 - $ 170, 862 \\ = $ 9, 138 \end{array}$

2

Computation of total interest expense
Amount to be repaid at maturity:
Total Interest Payment	$43,200
Par Value of Bonds	$180,000
Total amount to be repaid	$223,200
Less : Selling Price of the Bonds	$170,862

Total Bond Interest Expense	$52,338

$\begin{array}{l} * I n t e r e s t P a y m e n t = $ 7, 200 X 6 = $ 43, 200 \\ * S e m i a n n u a l I n t e r e s t P a y m e n t = $ 180, 000 X 0.04 = $ 7, 200 \end{array}$

3.

$\begin{array}{l} S e m i a n n u a l D i s c o u n t A m o r t i z e d = \frac{D i s c o u n t o n B o n d s P a y a b l e}{N u m b e r o f P e r i o d s} \\ = \frac{$ 9, 138}{6 p e r i o d s} \\ = $ 1, 523 \end{array}$

Conclusion

Conclusion:

Tano issued the bonds at $170,862 with a discount of $9,138 which is amortized over the life of bonds at $1,523 per period. The total interest expense to be recognized over the issued bonds is $52,338.

Answer 6

Chapter 14, Problem 2E

To determine

Issue of bond at discount:

When the coupon rate or contract rate of a bond is lower than the market interest rate, the bond is being issued at discount. The selling price of the bond will be lower than the face value of the bond under issue of bond at discount.

Straight Line Method Amortization of discount:

Under straight line amortization method, a specific amount of discount is amortized each period till its maturity period. The period ending amortization amount is computed by dividing the total discount by the number of periods in maturity of the bonds payable.

To determine:

1. Compute the amount of the discount on these bonds at issuance

2. Compute the total bond interest recognized over the life of these bonds

3. Preparation of amortization table using the straight line method to amortize the discount.

Expert Solution & Answer

Answer to Problem 2E

Solution:

1. The amount of $9,138 is discounted on issue of the bonds.

2. The total bond interest expense recognized over the life of these bonds is $52,338.

3.

Period Ending	Unamortized Discount	Carrying Value
01/1/2017	$9,138	$170,862
06/30/2017	$7,615	$172,385
12/31/2017	$6,092	$173,908
06/30/2018	$4,569	$175,431
12/31/2018	$3,046	$176,954
06/30/2019	$1,523	$178,477
12/31/2019	0	$180,000
Total

Explanation of Solution

Explanation:

1. Computation of Discount on bonds issuance

$\begin{array}{l} D i s c o u n t o n B o n d s P a y a b l e = B a n d s P a r V a l u e - B o n d s I s s u e P r i c e \\ = $ 180, 000 - $ 170, 862 \\ = $ 9, 138 \end{array}$

2

Computation of total interest expense
Amount to be repaid at maturity:
Total Interest Payment	$43,200
Par Value of Bonds	$180,000
Total amount to be repaid	$223,200
Less : Selling Price of the Bonds	$170,862

Total Bond Interest Expense	$52,338

$\begin{array}{l} * I n t e r e s t P a y m e n t = $ 7, 200 X 6 = $ 43, 200 \\ * S e m i a n n u a l I n t e r e s t P a y m e n t = $ 180, 000 X 0.04 = $ 7, 200 \end{array}$

3.

$\begin{array}{l} S e m i a n n u a l D i s c o u n t A m o r t i z e d = \frac{D i s c o u n t o n B o n d s P a y a b l e}{N u m b e r o f P e r i o d s} \\ = \frac{$ 9, 138}{6 p e r i o d s} \\ = $ 1, 523 \end{array}$

Conclusion

Conclusion:

Tano issued the bonds at $170,862 with a discount of $9,138 which is amortized over the life of bonds at $1,523 per period. The total interest expense to be recognized over the issued bonds is $52,338.

Answer 7

Chapter 14, Problem 2E

To determine

Issue of bond at discount:

When the coupon rate or contract rate of a bond is lower than the market interest rate, the bond is being issued at discount. The selling price of the bond will be lower than the face value of the bond under issue of bond at discount.

Straight Line Method Amortization of discount:

Under straight line amortization method, a specific amount of discount is amortized each period till its maturity period. The period ending amortization amount is computed by dividing the total discount by the number of periods in maturity of the bonds payable.

To determine:

1. Compute the amount of the discount on these bonds at issuance

2. Compute the total bond interest recognized over the life of these bonds

3. Preparation of amortization table using the straight line method to amortize the discount.

Answer 8

Expert Solution & Answer

Answer to Problem 2E

Solution:

1. The amount of $9,138 is discounted on issue of the bonds.

2. The total bond interest expense recognized over the life of these bonds is $52,338.

3.

Period Ending	Unamortized Discount	Carrying Value
01/1/2017	$9,138	$170,862
06/30/2017	$7,615	$172,385
12/31/2017	$6,092	$173,908
06/30/2018	$4,569	$175,431
12/31/2018	$3,046	$176,954
06/30/2019	$1,523	$178,477
12/31/2019	0	$180,000
Total

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Explanation:

1. Computation of Discount on bonds issuance

$\begin{array}{l} D i s c o u n t o n B o n d s P a y a b l e = B a n d s P a r V a l u e - B o n d s I s s u e P r i c e \\ = $ 180, 000 - $ 170, 862 \\ = $ 9, 138 \end{array}$

2

Computation of total interest expense
Amount to be repaid at maturity:
Total Interest Payment	$43,200
Par Value of Bonds	$180,000
Total amount to be repaid	$223,200
Less : Selling Price of the Bonds	$170,862

Total Bond Interest Expense	$52,338

$\begin{array}{l} * I n t e r e s t P a y m e n t = $ 7, 200 X 6 = $ 43, 200 \\ * S e m i a n n u a l I n t e r e s t P a y m e n t = $ 180, 000 X 0.04 = $ 7, 200 \end{array}$

3.

$\begin{array}{l} S e m i a n n u a l D i s c o u n t A m o r t i z e d = \frac{D i s c o u n t o n B o n d s P a y a b l e}{N u m b e r o f P e r i o d s} \\ = \frac{$ 9, 138}{6 p e r i o d s} \\ = $ 1, 523 \end{array}$

Answer 12

Conclusion

Conclusion:

Tano issued the bonds at $170,862 with a discount of $9,138 which is amortized over the life of bonds at $1,523 per period. The total interest expense to be recognized over the issued bonds is $52,338.

Answer 13

Ch. 14 - Prob. 1DQ Ch. 14 - Prob. 2DQ Ch. 14 - Prob. 3DQ Ch. 14 - Prob. 4DQ Ch. 14 - Prob. 5DQ Ch. 14 - Prob. 6DQ Ch. 14 - Prob. 7DQ Ch. 14 - Prob. 8DQ Ch. 14 - Prob. 9DQ Ch. 14 - Prob. 10DQ

Concept explainers

Videos

Answer to Problem 2E

Explanation of Solution

Want to see more full solutions like this?

Chapter 14 Solutions