Quatro Co. issues bonds dated January 1. 2013. with a par value of $850,000. The
ID: 2481810 • Letter: Q
Question
Quatro Co. issues bonds dated January 1. 2013. 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. What is the amount of the premium on these bonds at issuance? How much total bond interest expense will be recognized over the life of these bonds? 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.)Explanation / Answer
1.
Premium= $893,131 - $850,000= $43,131
2.
3.
Unamortized premium
$43,131 / 6 = $7,189 per period
Amount Repaid Six Semi annual payments of $51,000 ($850,000*6%) $306,000 Par value at Maturity $850,000 Rotal Repaid $1,156,000 Less Amount borrowed ($893,131) Total bond interest expense $262,869