Tano Company issues bonds with a par value of $180,000 on January 1, 2019. The bonds' annual contract rate is 8%, 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 10%, and the bonds are sold for $170,862.1. What is the amount of the discount on these bonds at issuance
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Question:
Tano Company issues bonds with a par value of $180,000 on January 1, 2019. The bonds' annual contract rate is 8%, 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 10%, and the bonds are sold for $170,862.1. What is the amount of the discount on these bonds at issuance
Answers
Answer:Tano CompanyThe amount of the discount on these bonds at issuance is:= $9,138.Explanation:a) Data and Calculations:Face value of bonds issued = $180,000Proceeds from sale of bonds 170,862Discount on bonds = $9,138Bonds' contract rate = 8%Market rate on date of issuance = 10%b) The bonds were issued at a value that is less than the face or par value. This implies that there are discounts on the bonds, totaling $9,138. This is the difference between the face value of the bonds and the actual proceeds received from the issuance of the bonds. This also explains why the bonds are paying 8% interest when the prevailing market rate is 10%. The discounts compensate the bondholders for the reduced interest rate by selling at a discount.
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