Question

Exercise 10-19B Effective Interest: Amortization of bond premium LO P6 Quatro Co. issues bonds dated January 1, 2019, with a par value of $760,000. The bonds' annual contract rate is 10%, 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 8%, and the bonds are sold for $799,828. 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. 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			799,828
	bonds face value			760,000
	premium on bonds			39,828	answer

2)	total Bond interest expense over life of bonds
	Amount repaid
	6	payments of		38000	228000
		par value at maturity			760,000
	total repaid				988000
	less amount borrowed				799,828
	total bond interest expense.				188,172

3)	Amortization Schedule
	period	interest	interest	premium	Carrying
		paid	expense	amortized	value
		5.00%	4%
	1/1/2019				799828
	6/30/2019	38000	31993	6007	793821
	12/31/2019	38000	31753	6247	787574
	6/30/2020	38000	31503	6497	781077
	12/31/2020	38000	31243	6757	774320
	6/30/2021	38000	30973	7027	767293
	12/31/2021	38000	30707	7293	760000

Amortization Schedule
period	interest	interest	premium	unamortized	Carrying
	paid	expense	amortized	premium	value
	5.00%	4%
1/1/2019				39828	799828
6/30/2019	38000	31993	6007	33821	793821
12/31/2019	38000	31753	6247	27574	787574
6/30/2020	38000	31503	6497	21077	781077
12/31/2020	38000	31243	6757	14320	774320
6/30/2021	38000	30973	7027	7293	767293
12/31/2021	38000	30707	7293	0	760000
	228000	188172	39828