https html 4 utro Co issues bonds dated January 1 201 with a par value of $890 0
ID: 2335130 • Letter: H
Question
https html 4 utro Co issues bonds dated January 1 201 with a par value of $890 000 The bonds' annual contract rate is 12%, 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 10%, and the bonds are sold for $935160. 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 using the effective interest method to amortize the premium. Complete this question by entering your answers in the tabs below What is the amount of the premium on these bonds at issuance? K Prex 4 of 5 Next>Explanation / Answer
1 Premium = 935160-890000 = $45160 2 Total bond interest expense over the life of the bonds: Amount repaid: 6 payments of $53,400 $320,400 Par value at maturity 890,000 Total repaid 1210400 Less amount borrowed -935,160 Total bond interest expense 275,240 3 Semiannual Interest Period-End Cash Interest Paid Bond Interest Expense Premium Amortization Unamortized Premium Carrying Value 1/1/2017 $45,160 $935,160 6/30/2017 $53,400 $46,758 $6,642 38,518 $928,518 12/31/2017 $53,400 $46,426 $6,974 31,544 $921,544 6/30/2018 $53,400 $46,077 $7,323 24,221 $914,221 12/31/2018 $53,400 $45,711 $7,689 16,532 $906,532 6/30/2019 $53,400 $45,327 $8,073 8,459 $898,459 12/31/2019 $53,400 $44,941 $8,459 0 $890,000 Total $320,400 $275,240 $45,160
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