Prairie Dunes Co. issues bonds dated January 1, 2011, with a par value of $900,0

Question

Prairie Dunes Co. issues bonds dated January 1, 2011, with a par value of $900,000. 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 $947,165.

  

What is the amount of the premium on these bonds at issuance? (Omit the "$" sign in your response.)

  

How much total bond interest expense will be recognized over the life of these bonds? (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)

  

  

Prepare an amortization table for these bonds; use the straight-line method to amortize the premium.(Make sure that the unamortized premium is adjusted to "0" and the carrying value equals to face value of the bond in the last period. Round your intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

   

Prairie Dunes Co. issues bonds dated January 1, 2011, with a par value of $900,000. 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 $947,165.

Explanation / Answer

1) Amount of premium = $947165 - $900000 = $47165

2) Interest for three years @ 10% on $900000 = $270000

Total interest expense

= total interest to be paid over three years - Premium on bonds payable

= $270000 - $47165

= $222835

3)

Semiannual Interest Period end Unamortized Premium ($) Carrying Value ($) 01-01-2011 47165 947165 6/30/2011 7861 939304 12/31/2011 7861 931443 6/30/2012 7861 923582 12/31/2012 7861 915721 6/30/2013 7861 907860 12/31/2013 7860 900000

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