Question

Tahoe Tent Ltd. issued bonds with a par value of $819,000 on January 1, 2017. The annual contract rate on the bonds was 15.00%, and the interest is paid semiannually. The bonds mature after three years. The annual market interest rate at the date of issuance was 13.00%, and the bonds were sold for $858,648. a. What is the amount of the original premium on these bonds? (Use financial calculator for calculating PV's.) Premium b. How much total bond interest expense will be recognized over the life of these bonds? (Do not round intermediate calculations. Round the final answer to the nearest whole dollar.) Total interest expense C. Present an amortization table for these bonds, use the effective interest method of allocating the interest and amortizing the premium. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar. Enter all the amounts as positive values.) Period Ending Cash Interest Paid Period Interest Expense Premium Amort. Unamortized Premium Carrying Value Jan. 1/17 June 30/17 Dec. 31/17 June 30/18 Dec. 31/18 June 30/19 Dec. 31/19 Totals

Answer 1

Premium : 39,648

Total interest Expenses = $328902

Face value of the Bond Bond Selling price Premium on bonds Payable 819000 858648 39648 Total Bond interest Expenses over the lifeof the bond Amount Repaid : 6 Payment of $61425 Par value at Marturiy Total repaid Less amount borrowed Total interest Expenses 368550 819000 1187550 858648 328902

Period Interet Expenses Caah Paid Year Jan 1/17 June 30/17 Dec 31/17 June 30/18 Dec 31/18 June 30/19 June 30/20 61425 61425 61425 61425 61425 61425 55812 55447 55059 54645 54204 53735 Premium Unamortized Carrying Amortised Premium Value 0 39648 858648 5613 34035 853035 5978 28057 847057 6366) 21691 840691 6780 14911 833911 7221 7690 826690 76901 0 819000 Cash Paid = 819000*15%*6/12 Interest Expenses=858648*13%*6/12 61425 55812