Question

Quatro Co. issues bonds dated January 1, 2019, with a par value of $790,000. 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 $810,694. 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 effective interest amortization table for these bonds. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the amount of the premium on these bonds at issuance? Premium < Required 1 Required 2 >

Answer 1

1
Premium	20694	=810694-790000
2
Total interest expense over life of bonds
6 payments of $ 35550	213300
Par value at maturity	790000
Total repaid	1003300
Less: Amount borrowed	810694
Total bond interest expense	192606
3
Semiannual Interest period end	Cash interest paid	Bond interest expense	Premium amortization	Unamortized Premium	Carrying value
01/01/2019				20694	810694
06/30/2019	35550	32428	3122	17572	807572
12/31/2019	35550	32303	3247	14325	804325
06/30/2020	35550	32173	3377	10948	800948
12/31/2020	35550	32038	3512	7436	797436
06/30/2021	35550	31897	3653	3783	793783
12/31/2021	35550	31767	3783	0	790000
Total	213300	192606	20694
Workings:
Cash interest paid	35550	=790000*9%*6/12
Bond interest expense = Carrying value X 8% X 6/12
Bond interest expense:
06/30/2019	32428	=810694*8%*6/12
12/31/2019	32303	=807572*8%*6/12
06/30/2020	32173	=804325*8%*6/12
12/31/2020	32038	=800948*8%*6/12
06/30/2021	31897	=797436*8%*6/12
12/31/2021	31767	=793783*8%*6/12