Chapter 14, Problem 7E

Exercise 14*7
Straight-Line:
Amortization of bond premium

Quatro Co. issues bonds dated January 1,2015, with a par value of $400,000. 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 $409,850.

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 like the one in Exhibit I4.l l for these bonds; use the straight-line method to amortize the premium.
’ Bond par value (of S l(X).(MM)) plus unamortized premium. J Adjusted for rounding