Question

Quatro Co. issues bonds dated January 1, 2o17, with a par value of $850,000. 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 $893,131. 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 amortization table for these bonds; use the straight-line method to amortize the premium. Complete this question by entering your answers in the tabs below. Required 2 Required 3 Required 1 Prepare an amortization table for these bonds; use the straight-line method to amortize the premium. (Round your intermediate calculations to the nearest dollar amount.) Carrying Value Unamortized Premium Semiannual Interest Period-End 01/01/2017 06/30/2017 12/31/2017 06/30/2018 12/31/2018 06/30/2019 12/31/2019

Answer 1

As per policy, only one question is allowed to answer at a time, so answering question 1 here:

Question 1)
req 1) The amount of premium on the bonds issuance = $893131-850000 = 43131
req 2) Total bond interest expense will be recognised over the bonds life =
cash interest paid minus Premium received on issue = (850000*12%*3)-43131 = $262869
req 3) Amortisation table on straight line method:
Half-year amortisation amount = 43131/6 = 7188.50
Semi-annual interest	Unamortized	Carrying
Period End	Premium	Value
1/1/2017	43131	893131
6/30/2017	35942.5	885942.5
12/31/2017	28754	878754
6/30/2018	21565.5	871565.5
12/31/2018	14377	864377
6/30/2019	7188.5	857188.5
12/31/2019	0	850000