Quatro Co. ssues bonds dated January 1, 2016, with a par value of S720.000. The
ID: 2552025 • Letter: Q
Question
Quatro Co. ssues bonds dated January 1, 2016, with a par value of S720.000. The bonds, annual contract rate is 10%, and interest is pad 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 $757,732 1. What is the amount of the premium on these bonds at issuance? remium 2. How much total bond interest expense will be recognized over the life of these bonds? Total bond interest expense over life of bonds Amount repaid payments of Par value at maturity Total repaid Less amount borrowed Total bond interest expense 3. 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.) iannual Period. Unamortized Carrying Premium Value End 01/01/2016 06/30/2016 12/31/2016 06/30/2017 12/31/2017 06/30/2018 12/31/2018Explanation / Answer
Bond issue price is more than the bond selling price so it is a premium bond
Premium = 757732 – 720000 = 37,732
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Amount Repaid = 6 payments of (720,000*.1*1/2) = $36,000
Total interest = 36000* 6 = 216000
Par value at maturity = 720000
Total repaid = 720000 + 216000 = 936000
Less amount borrowed = 757732
Total bond interest exp = 936000 – 757732 = 178268