Question

Quatro Co. issues bonds dated January 1, 2017, with a par value of $710,000. 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 $728,598.

Prepare an amortization table for these bonds using the effective interest method to amortize the premium.
  

Answer 1

Bond Amortization Table (Effective interest rate method) Semiannua Interest Bond's coupon Premium Premium Bond's beginning payments 8% / 2 on amortized balance carrying Date balance (2)-Beginning(4) (5) (5) value ($710,000x9% Bond bal. : (2)-(3) /2 1/1/2017 6/30/2017$728,598 12/31/2017 $725,792 6/30/2018 $722,874 12/31/2018 $719,839 6/30/2019 $716,683 12/31/2019 $713,400 $18,598 $728,598 [Premium bal. $728,598 $710,000 $18,958] $31,950 $29,144 $2,806 $15,792 $725,792 $31,950 $29,032 $2,918 $12,874 $722,874 $31,950 $28,915 $3,035 $9,839 $719,839 $31,950 $28,794 $3,156 $6,683 $716,683 $31,950 $28,667 $3,283 $3,400 $713,400 $31,950 $28,550 $3,400 $0 $710,000 $173,102 $18,598 NOTE In the amortization table, premium amortized $3,400 is the balancing figure calculated as the difference between total premium on bonds payable and amortized till 6/30/2019. And so, there is a positive $14 adjustment in interest expense for 12/31/2019 due to round-off difference