Question

Quatro Co. issues bonds dated January 1, 2019, with a par value of $710,000. 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 8%, and the bonds are sold for $728,598.

1. What is the amount of the premium 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 for these bonds.

• Required 1
• Required 2
• Required 3

What is the amount of the premium on these bonds at issuance?

	Premium

	Total Bond Interest Expense Over the Life of the Bonds: Amount repaid: payments of Par value at maturity Total repaid Less amount borrowed Total bond interest expense

repare an effective interest amortization table for these bonds. (Round all amounts to the nearest whole dollar.)

	Semiannual Interest Period-End Cash Interest Paid Bond Interest Expense Premium Amortization Unamortized Premium Carrying Value 01/01/2019 06/30/2019 12/31/2019 06/30/2020 12/31/2020 06/30/2021 12/31/2021 Total

• Required 2

Answer 1

Answer 1.

Par Value = $710,000
Issue Value = $728,598

Premium on Bonds = Issue Value - Par Value
Premium on Bonds = $728,598 - $710,000
Premium on Bonds = $18,598

Answer 2.

Par Value = $710,000

Annual Coupon Rate = 9.00%
Semiannual Coupon Rate = 4.50%
Semiannual Coupon = 4.50% * $710,000
Semiannual Coupon = $31,950

Time to Maturity = 3 years
Semiannual Period = 6

Answer 3.

Annual Interest Rate = 8.00%
Semiannual Interest Rate = 4.00%