Question

supposed the following

Help Save & Exit Submit Exercise Check my work Quatro Co. issues bonds dated January 1, 2019, with a par value of $850,000. 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 $893,131. 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 What is the amount of the premium on these bonds at issuance? Premium Required 2 > < Prev 6 of 7 1 Next >

Answer 1

Solution 1-1:

Amount of premium on bond issuance = $893,131 - $850,000 = $43,131

Solution 1-2:

Total bond interest expense over the life of bond
Particulars	Amount
Amount Repaid:
6 semiannual interest payments of $51,000 each	$306,000.00
Par Value at Maturity	$850,000.00
Total Repaid	$1,156,000.00
Less: Amount borrowed	$893,131.00
Total bond interest expense	$262,869.00

solution 1-3:

Bond Amortization table
Semiannual period end	Unamortized premium	Carrying value of bond
1-Jan-19	$43,131.00	$893,131.00
30-Jun-19	$35,942.00	$885,942.00
31-Dec-19	$28,753.00	$878,753.00
30-Jun-20	$21,564.00	$871,564.00
31-Dec-20	$14,375.00	$864,375.00
30-Jun-21	$7,186.00	$857,186.00
31-Dec-21	$0.00	$850,000.00

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