Quatro Co. issues bonds dated January 1, 2017, with a par value of $720,000. The

Question

Quatro Co. issues bonds dated January 1, 2017, with a par value of $720,000. The bonds' annual contract rate is 10%, 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 $757,732 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 Complete this question by entering your answers in the tabs below. Required Required Required What is the amount of the premium on these bonds at issuance? 2 3 remiumm

Explanation / Answer

1 Premium at issuance=Issue Price- Par value=757732-720000=$37732 Premium $37,732 Journal entry at the time of Bond issue Date Account Debit Credit Jan.1, 2017 Cash $757,732 Bond payable $720,000 Premium on bond payable $37,732 The premium will be amortized in each period of six months: June30 and December 31 Number of periods =(3*2)= 6 Amortization per period(37732/6) $6,288.67 Amount of interest per period as per contract $36,000 (720000*0.1)/2 Journal Entry on June 30, 2017 Date Account Debit Credit June.30 , 2017 Interest Expense $29,711.33 Premium on Bonds Payable $6,288.67 Cash $36,000 Interest expense is reduced by the amortization of the premium A Total contracted interest payment in 6 periods $216,000 (36000*6) B Total Premium amortization $37,732 2 C=A-B Total Interest expense $178,268 3 AMORTIZATION TABLE Date Premium on Bonds Payable Interest Bonds Payable Carrying value Expense Of Bonds Jan.1,2017 $37,732 $0 $720,000 $757,732 .June. 30, 2017 $31,443.33 $29,711.33 $720,000 $751,443.33 .Dec. 31, 2017 $25,154.66 $29,711.33 $720,000 $745,154.66 .June. 30, 2018 $188,665.99 $29,711.33 $720,000 $908,665.99 .Dec. 31, 2018 $12,577.33 $29,711.33 $720,000 $732,577.33 .June. 30, 2019 $6,288.67 $29,711.33 $720,000 $726,288.67 .Dec. 31, 2019 $0.00 $29,711.33 $720,000 $720,000.00

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