Question

Quatro Co. issues bonds dated January 1, 2017, with a par value of $900,000. 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 $947,165.

Answer 1

Amortization Schedule
Period	Cash paid	Interest	Closing bal.
0	0	$0	$947,165
1	$45,000	$37,887	$940,052
2	$45,000	$37,602	$932,654
3	$45,000	$37,306	$924,960
4	$45,000	$36,998	$916,958
5	$45,000	$36,678	$908,637
6	$945,000	$36,363	$0

Account titles and explanation	Debit	Credit
Cash	$947,179
Premium on bonds		$47,179
Bonds payable		$900,000
(Bonds issued at discount)
Interest expense	$37,887
Premium on bonds	$7,113
Cash		$45,000
(interest expense booked for first payment)
Interest expense	$37,602
Premium on bonds	7,398
Cash		$45,000
(interest expense booked for second payment)