Quatro co. issues bonds dated january 1, 2017, 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. a) what is the amount of the premium on these bonds at issuance? b) how much total bond interest expense will be recognized over the life of these bonds? c) how would the bond issuance be presented on the balance sheet on the date of issuance?

a) premium on bonds payable9,850

b) Total Interest: 146,171.78

c) bonds payable    400,000

premium on BP           9,850

net                           409,850

Explanation:

procceds409,850

face value400,000

premium on bonds payable9,850

b) to know the total interest expense we need to consrtuct the schedule of amortization for the bonds:

interest expense: carrying value x market semiannual rate

first year: 409,850 x 12%/2 = 24.591‬

cash disbursements: bond face value x bond semiannual rate (constant)

400,000 x 13%/2 = 26,000

amortization: difference between disbursements and interest expense.

carrying value: beginning less amortization.

c)

At issuence the bond will be disclosure as follow:

bonds payable    400,000

premium on BP        9,850

net                        409,850

eds? ederal government or feds