Question

Quatro Co. issues bonds dated January 1, 2015, with a par value of $790,000. 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 $810,694. 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. (Round your intermediate calculations to the nearest dollar amount.)

Answer 1

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

premium on these bonds at issuance

= 810,694-790,000

=$20694

premium on these bonds at issuance=$20694

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2. How much total bond interest expense will be recognized over the life of these bonds?

Amount repaid
6 semiannual payments of ($35,550*6) ($790,000 x 9%*1/2)=$ 35,550	213300
Par value at maturity	790,000
Total repaid		1,003,300
Amount borrowed		810,694
Total interest recognized over the life of the bonds		192,606

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3. Prepare an amortization table for these bonds; use the straight-line method to amortize the premium

Semiannual period end	Cash paid	Bond interest Expanses =Carrying valuex6%	Premium Amortization	Unamortized premium $20694 / 6 = $3449 per period	Carrying Value
1/1/2015				20694	810694
6/30/2015	35,550	32,428	3,122	17245	807245
12/31/2015	35,550	32,290	3,260	13796	803796
6/30/2016	35,550	32,152	3,398	10347	800347
12/31/2016	35,550	32,014	3,536	6898	796898
6/30/2017	35,550	31,876	3,674	3449	793449
12/31/2017	35,550	31,738	3,812	0	790000