Question

Quatro Co. issues bonds dated January 1, 2017, with a par value of $740,000. The bonds’ annual contract rate is 13%, 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 $758,222.
  
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 amortization table for these bonds; use the straight-line method to amortize the premium.
  

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

	Premium

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

Prepare an amortization table for these bonds; use the straight-line method to amortize the premium. (Round your intermediate calculations to the nearest dollar amount.)

	Semiannual Interest Period-End Unamortized Premium Carrying Value 01/01/2017 06/30/2017 12/31/2017 06/30/2018 12/31/2018 06/30/2019 0 12/31/2019

Answer 1

Requirement 1

Premium on Bond
Bond issue price	$    7,58,222.00
Face value	$    7,40,000.00
Premium on bond (758222-740000)	$        18,222.00

Requirement 2

otal Bond Interest Expense Over Life of Bonds:
Amount repaid:
	payments of	48100 for 6 periods	$          2,88,600.00
Par value at maturity			$          7,40,000.00
Total repaid			$         10,28,600.00
Less amount borrowed			$          7,58,222.00
Total bond interest expense			$           2,70,378.00

Requirement 3

Workings
Bond issue price	$    7,58,222.00
Face value	$    7,40,000.00
Premium on bond	$        18,222.00
Number of Interest payments	6
Discount to be amortized per payment	$          3,037.00
Interest on bond for half year	$        48,100.00

Semiannual Interest Period-End	Unamortized Premium	Carrying Value
01-01-2017	$ 18,222.00	$ 7,58,222.00
06/30/2017	$ 15,185.00	$ 7,55,185.00
12/31/2017	$ 12,148.00	$ 7,52,148.00
06/30/2018	$ 9,111.00	$ 7,49,111.00
12/31/2018	$ 6,074.00	$ 7,46,074.00
06/30/2019	$ 3,037.00	$ 7,43,037.00
12/31/2019	$            -	$ 7,40,000.00