Question

Quatro Co. issues bonds dated January 1, 2019, 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 a straight-line amortization table for these bonds.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

Prepare a straight-line amortization table for these bonds. (Round your intermediate calculations to the nearest dollar amount.)

	Semiannual Interest Period-End Unamortized Premium Carrying Value 01/01/2019 06/30/2019 12/31/2019 06/30/2020 12/31/2020 06/30/2021 0 12/31/2021

Answer 1

1.

Par value of bonds = $730,000

Issue price of bonds = $767,042

Premium on bonds payable = Issue price of bonds - Par value of bonds

= $767,042 - 730,000

= $37,042

2.

Semi annual interest payment = 730,000 x 12% x 6/12

= $43,800

Total bond interest expense over the life of the bonds

Amount repaid
6 payments of $43,800	262,800
Par value at maturity	730,000
Total repayments	992,800
Less amount borrowed (from part 1)	- $767,042
Total bond interest expense	$225,758

3.

Semi annual Straight-line amortization of bond premium = 37,042/6

= $6,174

	Semiannual Interest Period-End Unamortized Premium Carrying Value 01/01/2019 37,042 $767,042 06/30/2019 37,042 - $6,174 = 30,868 760,868 12/31/2019 30,868 - $6,174 = 24,694 754,694 06/30/2020 24,694 - $6,174 = 18,520 748,520 12/31/2020 18,520 - $6,174 = 12,346 742,346 06/30/2021 12,346 - $6,174 = 6,172 736,172 12/31/2021 6,172 - 6,172 = 0 730,000

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