Question

Exercise 10-9 Straight-Line: Amortization of bond premium LO P3 Quatro Co. issues bonds dated January 1, 2019, with a par value of $800,000. 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 $819,700. 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 1 Required 2 >

Answer 1

1)	Premium on bonds
	Bonds issue price			819,700
	bonds face value			800,000
	premium on bonds			19,700	answer
2)	total Bond interest expense over life of bonds
	Amount repaid
	6	payments of		52000	312000
		par value at maturity			800,000
	total repaid				1112000
	less amount borrowed				819,700
	total bond interest expense.				292,300
3)	premium amortized =19700/6
			3283
	period	unamortized	Carrying
		premium	value
	1/1/2019	19,700	819,700
	6/30/2019	16,417	816,417
	12/31/2019	13,133	813,133
	6/30/2020	9,850	809,850
	12/31/2020	6,567	806,567
	6/30/2021	3,283	803,283
	12/31/2021	0	800,000