Quatro Co. issues bonds dated January 1, 2019, with a par value
of $860,000. The bonds’ annual contract rate is 10%, 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 $905,068.
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.
Face Value of Bonds = $860,000
Issue Value of Bonds = $905,068
Premium on Bonds Payable = Issue Value of Bonds - Face Value of
Premium on Bonds Payable = $905,068 - $860,000
Premium on Bonds Payable = $45,068
Annual Coupon Rate = 10.00%
Semiannual Coupon Rate = 5.00%
Semiannual Coupon = 5.00% * $860,000
Semiannual Coupon = $43,000
Time to Maturity = 3 years
Semiannual Period = 6
Annual Interest Rate = 8.00%
Semiannual Interest Rate = 4.00%
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