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, 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 using the effective interest method to amortize the premium, 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 2 >

need help answering the wuestions above... thanks

Answer 1

Answer 1.

Face Value of Bonds = $710,000
Issue Value of Bonds = $728,598

Premium on Bonds Payable = Issue Value of Bonds - Face Value of Bonds
Premium on Bonds Payable = $728,598 - $710,000
Premium on Bonds Payable = $18,598

Answer 2.

Annual Coupon Rate = 9.00%
Semiannual Coupon Rate = 4.50%
Semiannual Coupon = 4.50% * $710,000
Semiannual Coupon = $31,950

Time to Maturity = 3 years
Semiannual Period = 6

Total bond interest expense over life of bonds: Amount repaid: 6 payments of $ 31,950 $ Par value at maturity $ Total repaid $ Less: amount borrowed $ Total bond interest expense $ 191,700 710,000 901,700 728,598 173,102

Answer 3.

Annual Interest Rate = 8.00%
Semiannual Interest Rate = 4.00%

Semiannual Period End 01/01/2017 06/30/2017 12/31/2017 06/30/2018 12/31/2018 06/30/2019 12/31/2019 Total Cash Interest | Bond Interest | Premium | Unamortized | Paid Carrying Vlue Expense Amortization Premium $ 18,598 $ 728,598 $ 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 $ 191,700 $ 173,102 $ 18,598