Question

Quatro Co. issues bonds dated January 1, 2017, with a par value of $830,000. 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 $851,741.
  
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.

Premium

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

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
12/31/2019

Answer 1

1) Premium on bonds payable = 851741-830000 = $21741

2) Calculate following

Total Bond Interest Expense Over Life of Bonds:
Amount repaid
6 payment of 37350	224100
Par value of bonds	830000
Total	1054100
Less amount borrowed	851741
Total bond interest expense	202359

Amortization schedule

Semiannual interest period-End	Unamortized premium	Carrying value
01/01/2017	21741	851741
06/30/2017	18117.5	848117.50
12/31/2017	14494	844494
06/30/2018	10870.50	840870.50
12/31/2017	7247	837247
06/30/2019	3623.5	833623.50
12/31/209	0	830000