Question

Quatro Co. issues bonds dated January 1, 2017, 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 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.

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 the Life of the 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 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.

1. Amount of premium on Bonds at issuance	$728598-$710000
	=$18598

2.  

2. Bond Interest Expense recognized over the life of bond
Amount Repaid:
-Semi annual payment of interest (6 Payment of 31950 each)	191700		710000*4.5%
-Par value at maturity	710000
Total Repaid	901700
Less Amoutn borrowed	728598
Total Bond interest Expense	173102

3.

Interest payment date	Cash Interest paid	Bond Interest exp	Premium amortization	Unmortised Premium	Carrying Value
Working:	710000*4.5%		Cash Interest paid-Bond Inte		Carrying Value-Premium Amortization of previous day
01-01-2017				18,613	7,28,598
06/30/2017	31950	29,144	2,806	15,807	7,25,792
12/31/2017	31950	29,032	2,918	12,888	7,22,874
06/30/2018	31950	28,915	3,035	9,853	7,19,839
12/31/2018	31950	28,794	3,156	6,697	7,16,682
06/30/2019	31950	28,667	3,283	3,414	7,13,399
12/31/2019	31950	28,536	3,414	-	7,09,985
Total	191700	1,73,087	18,613
Working:	Bond Interest exp	Unamortised pRemium
	728598*4%	18613-2806
	('728598-2806)*4%	15807-2918
	('728598-2806-2918)*4%	12888-3035
	('728598-2806-2918-3035)*4%	9853-3156
	and so on	6697-3283
		3414-3414