Quatro Co issues bonds dated January 1 2017 with a par value

Quatro Co. issues bonds dated January 1, 2017, with a par value of $890,000. 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 $935,160.

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?

How much total bond interest expense will be recognized over the life of these bonds?

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

Premium

$

Solution

1 Premium = 935160-890000 = $45160 2 Total Bond Interest Expense Over the Life of the Bonds: Amount repaid: 6 payments of 53400 320400 Par value at maturity 890000 Total repaid 1210400 Less amount borrowed -935160 Total bond interest expense $275,240 3 Semiannual Interest Period-End Cash Interest Paid Bond Interest Expense Premium Amortization Unamortized Premium Carrying Value 1/1/2017 935160 6/30/2017 53400 46758 6642 38518 928518 12/31/2017 53400 46426 6974 31544 921544 6/30/2018 53400 46077 7323 24221 914221 12/31/2018 53400 45711 7689 16532 906532 6/30/2019 53400 45327 8073 8459 898459 12/31/2019 53400 44941 8459 0 890000 Total 320400 275240 45160