Question

Quatro Co. issues bonds dated January 1, 2019, with a par value of $780,000. The bonds' annual contract rate is 13%, and interest is pald 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 $799,207. 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 Prepare an effective interest amortization table for these bonds. (Round all amounts to the nearest whole dollar.) Cash Interest Paid Bond Interest Expense Premium Amortization Unamortized Premium Carrying Value $ 19,207 s 799,207 $ 47.952 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 50,700 $ 50.700 50,700 50,700 50,700 50,700 304,200 $ 50,700 284,993 $ $ 19.207 < Required 2

Answer 1

Req 1.
Par value of bonds issued		7,80,000
Issuance price of bonds		7,99,207
Premium on issuance of bonds		19,207
(799,207-780,000)
Req 2.
Semi annual cash interest = 780,000*13%*6/12=	50700
6 payments of $ 50700 each			3,04,200
Maturity amount paid			7,80,000
Total Repayments made			10,84,200
Less: Amount borrowed			7,99,207
Total Interest paid				2,84,993
Req 3.
Amort Chart
Period	Cash Int	Bond Int	Premium	Unamortize	Carrying
		Expense	amortized	Premium	Value of bonds
01.01.19				19207	799207
30.06.19	50700	47952	2748	16459	796459
31.12.19	50700	47788	2912	13547	793547
30.06.20	50700	47613	3087	10460	790460
31.12.20	50700	47428	3272	7187	787187
30.06.21	50700	47231	3469	3719	783719
31.12.21	50700	46981	3719	0	780000
Total	304200	284993	19207