Stanford issues bonds dated January 1, 2017, 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 amortization table like the one in Exhibit 14B.1 for these bonds; use the effective interest method to amortize the discount.

Exhibit 14 B.1

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A. Bonds: $100,000 Par Value, Semiannual Interest Payments, Two-Year Life, 4% Semiannual Contract Rate, 5% Semiannual Market Rate 2 (C) (A) (B) (D) (E) Bond Cash 4 Carrying Value Interest Interest Discount Unamortized Semiannual Discount Paid Expense Amortization Interest Period-End 4% x $100, 000 5% x Prior (E) Prior (D) – (C) $100,000 – (D) (B) – (A) $ 96,454 (0) $3,546 12/31/2017 $ 4,000/ $ 823 $ 4,823 2,723 (1) 97,277 6/30/2018 (2) 12/31/2018 1,859 4,000 4,864 864 98.141 (3) 6/30/2019 4,907 907 4,000 99,048 10 952 (4) 12/31/2019 4,952 4,000 952 100,000 11 12 $16,000 $3,546 $19,546