Question

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; use the straight-line method to amortize the premium.
  

Answer 1

fox B2 1 А B C D G Н I 1 selling price of the bonds par value of bonds premium on bonds at issuance $935,160 2 1 $890,000 $ 45,160 5 semiannual interest amount semiannual interest periods total interest payment over the life of these bonds premium amortization over the life of these bonds total bond interest expense will be recognized over the life of these bonds $53,400 6 2. 7 $320,400 = $45,160 $ 275,240 10 11 semiannual premium amortization $45,160 6 $7,526.67 12 13 amortization table 14 interest premium interest carrying value period of bonds 15 payment amorization expense $935,160.00 $927,633.33 $920,106.67 $912,580.00 16 0 $53,400.00 $7,526.67 $45,873.33 $45,873.33 $45,873.33 17 1 $53,400.00 $53,400.00 $7,526.67 18 2 $7,526.67 19 3 $53,400.00 $53,400.00 $53,400.00 $7,526.67 $45,873.33 $905,053.33 $897,526.67 $ 890,000.00 20 4 $7,526.67 $45,873.33 21. 5 $7,526.67 $45,873.33 22 6 23 st LON

for formulas and calculations, refer to the image below -

B2 1 В A C D Е F G Н I 1 selling price of the bonds par value of bonds premium on bonds at issuance 2 1 935160 890000 3 H2-H3 4 5 semiannual interest amount semiannual interest periods total interest payment over the life of these bonds premium amortization over the life of these bonds -890000*12 % /2 -3*2 6 2 7 H6*H7 H4 total bond interest expense will be recognized over the life of these bonds H8-H9 10 11 semiannual premium amortization $45,160/6 $7,526.67 12 13 amortization table 14 interest premium interest carrying value of period bonds 15 amorization payment expense 935160 16 0 -45160/6 =45160/6 -45160/6 =45160/6 =45160/6 45160/6 53400 D17-E17 1 17 G16-E17 53400 =D18-E18 -G17-E18 18 53400 19 3 D19-E19 G18-E19 -G19-E20 4 53400 20 D20-E20 53400 -D21-E21 5 EG20-E21 21 53400 EG21- E22 -D22-E22 22 6 23 st CO O

In case you have any query, kindly ask in comments.