Question

Quatro Co. issues bonds dated January 1, 2017, with a par value of $870,000. The bonds, annual contract rate is 9%, 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 $892,789 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.

Answer 1

1) Premium on bonds payable = 892789-870000 = $22789

2) Interest expense = Interest paid-premium amortization

= (870000*9%*3)-22789

Total interest expense = $212111

3) Amortization

Semi annual interest period	Uamortized premium	Carrying value
01/01/17	22789	892789
6/30/2017	18891	888991
12/31/2017	15093	885093
06/30/2018	11295	881295
12/31/2018	7497	877497
06/30/2019	3699	873699
12/31/2019	0	870000