Quatro Co. issues bonds dated January 1, 2015, with a par value of $730,000. The
ID: 2421695 • Letter: Q
Question
Quatro Co. issues bonds dated January 1, 2015, with a par value of $730,000. 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 $767,042.
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.
Quatro Co. issues bonds dated January 1, 2015, with a par value of $730,000. 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 $767,042.
Explanation / Answer
Answer 1. Calculation of Amount of Preimum on issue of Bonds Particulars Amount SP of Bonds $767,042 Less: Par Value of bonds $730,000 Premium on Issue of Bonds $37,042 Answer 2. Calculation of Total Bond Interets Payment Over the life of Bonds Particulars Amount Interest Paid In 3 Years 262800 ($730000 X 12% X 3 Year) Less: Premiun on issue of Bonds $37,042 Total Interest Expenses $225,758 Answer 3. Bond Premium Amortization Table Date Interest payment Interest Expense Premium Amortization Unamortized Premium Bond Carrying Value ($730000 X 12% X 6/12) (767052 X 10% X 6/12) A B C = A-B Jan.1, 2015 37,042 767,042 June 31, 2015 43,800 38,352 5,448 31,594 761,594 Dec 31, 2015 43,800 38,080 5,720 25,874 755,874 June 31, 2016 43,800 37,794 6,006 19,867 749,867 Dec 31, 2016 43,800 37,493 6,307 13,561 743,561 June 31, 2017 43,800 37,178 6,622 6,939 736,939 Dec 31, 2017 43,800 36,861 6,939 (0) 730,000 262800 225,758 37,042