Quatro Co. issues bonds dated January 1, 2017, with a par value of $780,000. The

Question

Quatro Co. issues bonds dated January 1, 2017, with a par value of $780,000. The bonds’ annual contract rate is 13%, 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 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 amortization table for these bonds; use the straight-line method to amortize the premium

Explanation / Answer

SOLUTION

(A) Amount of premium = $799,207 - $780,000 = $19,207

(B)

(C)

Amount ($) Amount ($) Amount repaid 6 semiannual payments of $50,700 ($780,000 * 6.5%) 304,200 Par value at maturity 780,000 Total repaid 1,084,200 Amount borrowed 799,207 Total interest recognized over the life of the bonds 284,993

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