Question

Check my work Exercise 14-19B Effective Interest: Amortization of bond premium LO P6 Quatro Co. issues bonds dated January 1, 2019, with a par value of $840,000. The bonds' annual contract rate is 13%, 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 12%, and the bonds are sold for $860,685. 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. ces 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	20685	=860685-840000
2
Total interest expense over life of bonds
6 payments of $ 54600	327600
Par value at maturity	840000
Total repaid	1167600
Less: Amount borrowed	860685
Total bond interest expense	306915
3
Semiannual Interest period end	Cash interest paid	Bond interest expense	Premium amortization	Unamortized Premium	Carrying value
01/01/2019				20685	860685
06/30/2019	54600	51641	2959	17726	857726
12/31/2019	54600	51464	3136	14590	854590
06/30/2020	54600	51275	3325	11265	851265
12/31/2020	54600	51076	3524	7741	847741
06/30/2021	54600	50864	3736	4005	844005
12/31/2021	54600	50595	4005	0	840000
Total	327600	306915	20685
Note: Cash interest = 840000*13%*6/12 = $54600