Question

Quatro Co. issues bonds dated January 1, 2017, with a par value of $770,000. 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 $809,071. 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; use the straight-line 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 1 Required 2

Answer 1

1
Premium	39071	=809071-770000
2
Total interest expense over life of bonds
6 payments of $ 46200	277200
Par value at maturity	770000
Total repaid	1047200
Less: Amount borrowed	809071
Total bond interest expense	238129
3
Semiannual Interest period end	Unamortized Premium	Carrying value
01/01/2017	39071	809071
06/30/2017	32559	802559
12/31/2017	26047	796047
06/30/2018	19535	789535
12/31/2018	13023	783023
06/30/2019	6511	776511
12/31/2019	0	770000
Workings:
Semiannual Interest	46200	=770000*12%*6/12
Semiannual premium amortization	6512	=39071/6