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 $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 a straight-line amortization table for these bonds. Complete this question by entering your answers in the tabs below. Required Required Required 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	Unamortized Premium	Carrying value
01/01/2019	20685	860685
06/30/2019	17237	857237
12/31/2019	13789	853789
06/30/2020	10341	850341
12/31/2020	6893	846893
06/30/2021	3445	843445
12/31/2021	0	840000
Workings:
Semiannual Interest	54600	=840000*13%/2
Semiannual Premium amortization	3448	=20685/6