Question

Quatro Co. issues bonds dated January 1, 2019, with a par value of $810,000. 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 $851,101. 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. points (8 01:57:02 Complete this question by entering your answers in the tabs below. eBook Required 1 Required 2 Required 3 Prepare an effective interest amortization table for these bonds. (Round all amounts to the nearest whole dollar.) Cash Interest Bond Interest Paid Expense Premium Amortization Unamortized Premium Carrying Value Semiannual Interest Period-End 01/01/2019 06/30/2019 12/31/2019 06/30/2020 12/31/2020 06/30/2021 12/31/2021 Total

Answer 1

Requirement (3) - Effective interest amortization table

Semi-annual interest period	Cash Interest Paid	Bond Interest Expense	Premium Amortization	Unamortized Premium	Carrying Value
01/01/2019				41,101	8,51,101
06/30/2019	48,600	42,555	6,045	35,056	8,45,056
12/31/2019	48,600	42,253	6,347	28,709	8,38,709
06/30/2020	48,600	41,935	6,665	22,044	8,32,044
12/31/2020	48,600	41,602	6,998	15,047	8,25,047
06/30/2021	48,600	41,252	7,348	7,699	8,17,699
12/31/2021	48,600	40,885	7,699	0	8,10,000

Cash interest paid = Face value of the Bond x Annual contract rate x ½

Bond interest expenses = Last period carrying value x Annual market rate x ½

Premium amortization = Cash interest paid – Bond interest expenses

Carrying Value = Last period carrying value - Premium amortization