Question

Quatro Co. issues bonds dated January 1, 2017, with a par value of $880,000. 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 $901,670.

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 using the effective interest method to amortize the premium.Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

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

	Total Bond Interest Expense Over the Life of the Bonds: Amount repaid: 6 payments of Par value at maturity Total repaid 0 Less amount borrowed Total bond interest expense $0

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

Prepare an amortization table for these bonds using the effective interest method to amortize the premium. (Round all amounts to the nearest whole dollar.)

	Semiannual Interest Period-End Cash Interest Paid Bond Interest Expense Premium Amortization Unamortized Premium Carrying Value 01/01/2017 06/30/2017 12/31/2017 06/30/2018 12/31/2018 06/30/2019 12/31/2019 Total

Answer 1

1
Premium on issuance	21670	=901670-880000
2
Total bond interest expense over life of bonds:
Amount repaid:
6 payments of $57200	343200
Par value at maturity	880000
Total repaid	1223200
Less amount borrowed	901670
Total bond interest expense	321530
3
Semiannual Interest Period ­End	Cash Interest Paid	Bond Interest Expense	Premium Amortization	Unamortized Premium	Carrying Value
01/01/2017				21670	901670
06/30/2017	57200	54100	3100	18570	898570
12/31/2017	57200	53914	3286	15284	895284
06/30/2018	57200	53717	3483	11801	891801
12/31/2018	57200	53508	3692	8109	888109
06/30/2019	57200	53287	3913	4196	884196
12/31/2019	57200	53004	4196	0	880000
Total	343200	321530	21670