Question

exercise 10-4 (algo) straight-line: amortization of bond discount lo p2
tano company issues bonds with a par value of $81,000 on january 1, 2027. the bonds annual contract rate is 6%, 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 8%, and the bonds are sold for $76,753.
complete this question by entering your answers in the tabs below.
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how much total bond interest expense will be recognized over the life of these bonds?
total bond interest expense over life of bonds:
amount repaid
payments of
par value at maturity
total repaid 0
less amount borrowed
total bond interest expense $ 0

Explanation:

Step1: Calculate total interest payments

First, find the semiannual interest payment: $\$81,000 \times \frac{6\%}{2} = \$2,430$.
Number of payments over 3 years: $3 \times 2 = 6$.
Total interest payments: $\$2,430 \times 6 = \$14,580$

Step2: Identify par value at maturity

The par value (face value) of the bonds is the amount repaid at maturity: $\$81,000$

Step3: Calculate total repaid

Add total interest payments and par value: $\$14,580 + \$81,000 = \$95,580$

Step4: Identify amount borrowed

The amount borrowed is the bond issue price: $\$76,753$

Step5: Compute total bond interest expense

Subtract amount borrowed from total repaid: $\$95,580 - \$76,753 = \$18,827$

Answer:

Total Bond Interest Expense Over Life of Bonds:

Line Item	Amount
Par value at maturity	$\$81,000$
Total repaid	$\$95,580$
Less amount borrowed	$\$76,753$
Total bond interest expense	$\$18,827$

Final total bond interest expense: $\$18,827$