Question

Quatro Co. issues bonds dated January 1, 2018, with a par value of $730,000. The bonds’ annual contract rate is 12%, 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 10%, and the bonds are sold for $767,042.

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.

Quatro Co. issues bonds dated January 1, 2018, with a par value of $730,000. The bonds’ annual contract rate is 12%, 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 10%, and the bonds are sold for $767,042.

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) Premium on bonds payable = 767042-730000 = 37042

2) Bond interest expense

Amount repaid
6 Payment of 43800	262800
Par value of maturity	730000
Total repayment	992800
Less: Amount borrowed	-767042
Total bond interest expense	225758

3) Amortization table

	Unamortized premium	Carrying value
Jan 1,2018		767042
June 30,2018	37042-6174 = 30868	760868
Dec 31,2018	30868-6174 = 24694	754694
June 30,2019	24694-6174 = 18520	748520
Dec 31,2019	18520-6174 = 12346	742346
June 30,2020	6172	736172
Dec 31,2020	0	730000

answered by: anonymous