Quatro Co issues bonds dated January 1 2015 with a par value

Quatro Co. issues bonds dated January 1, 2015, with a par value of $750,000. 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 $769,646. 1. What is the amount of the premium on these bonds at issuance? Premiumm 2. How much total bond interest expense will be recognized over the life of these bonds? Total bond interest expense over life of bonds: payments of Par value at maturity Total repaid Less amount borrowed Total bond interest expense 0 0

Solution

1) Premium 19,646 Bonds sold at 769,646 par value of bonds -750,000 Premium on bonds 19,646 2) Total Bond interest expense over life of bonds: Amount repaid: 6 payments of 33750 202500 par value at maturity 750,000 total repaid 952500 less amount borrowed 769,646 total bond interest expense. 182,854 3) period unamortized Carrying premium value 1/1/2015 19,646 769,646 6/30/2015 16,372 766,372 12/31/2015 13,097 763,097 6/30/2016 9,823 759,823 12/31/2016 6,549 756,549 6/30/2017 3,274 753,274 12/31/2017 0 750,000