Quatro Co. issues bonds dated January 1, 2017, with a par value of $870,000. The
ID: 2336784 • Letter: Q
Question
Quatro Co. issues bonds dated January 1, 2017, with a par value of $870,000. The bonds’ annual contract rate is 9%, 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 $892,789.
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 using the effective interest method to amortize the premium.
Explanation / Answer
1) Premium on bonds Bonds issue price 892,789 bonds face value 870,000 premium on bonds 22,789 answer 2) total bond interest expense interest paid (870,000*9%)*3= 234900 less:Premium on bonds 22,789 total bond interest expense 212,111 answer 3) Amortization Schedule period interest interest premium Carrying paid expense amortized value 4.50% 4% 1/1/2017 892789 6/30/2017 39150 35712 3438 889351 12/31/2017 39150 35574 3576 885775 6/30/2018 39150 35431 3719 882056 12/31/2018 39150 35282 3868 878188 6/30/2019 39150 35128 4022 874165 12/31/2019 39150 34985 4165 870000 234900 212111 22789 (there may be slight difference in schedule figures due to rounding)