Question

Quatro Co. issues bonds dated January 1, 2019, 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 effective interest amortization table for these bonds.

• Required 1
• Required 2
• Required 3

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

Semiannual Interest Period-End	Cash Interest Paid	Bond Interest Expense	Premium Amortization	Unamortized Premium	Carrying Value
01/01/2019				$21,741	$851,741
06/30/2019				18,118	848,118
12/31/2019				14,494	844,494
06/30/2020				10,871	844,494
12/31/2020				7,247	844,494
06/30/2021				3,624	844,494
12/31/2021			14,494	0	830,000
Total

Answer 1

1
Premium	21741	=851741-830000
2
Total bond interest expense over life of bonds:
Amount repaid:
6 payments of $37350	224100
Par value at maturity	830000
Total repaid	1054100
Less amount borrowed	851741
Total bond interest expense	202359
3
Semiannual Interest Period­End	Cash Interest Paid	Bond Interest Expense	Premium Amortization	Unamortized Premium	Carrying Value
01/01/2019				21741	851741
06/30/2019	37350	34070	3280	18461	848461
12/31/2019	37350	33938	3412	15049	845049
06/30/2020	37350	33802	3548	11501	841501
12/31/2020	37350	33660	3690	7811	837811
06/30/2021	37350	33512	3838	3973	833973
12/31/2021	37350	33377	3973	0	830000
Total	224100	202359	21741