On January 1, 2018, the Company issued a 4-year, 9%, $500,000 bond that will pay interest...

On January 1, 2018, the Company issued a 4-year, 9%, $500,000 bond that will pay interest at the end of each month. The market rate at the time of issue was 7%.

The assignment requires you to calculate the issue price (present value of the bond) as well as the discount or premium. The assignment then requires you complete the entire amortization schedule from issue date through maturity. The last requirement asks you to prepare three journal entries

Expert Solution

a.
	Issue Price		$ 5,34,807.40

	Working:

	a.	Monthly Interest payment			=	Face Value * Monthly Interest rate
					=	$ 5,00,000	9%1/12
					=	$ 3,750

	b.	Present value of annuity of 1			=	(1-(1+i)^-n)/i			Where,
					=	(1-(1+0.005833)^-48)/0.005833			i	7%/12	=	0.005833
					=	41.7605			n	4*12	=	48

		Present value of 1			=	(1+i)^-n
					=	(1+0.005833)^-48
					=	0.7564

	c.	Present value of coupon interest				=	$ 3,750	*	41.7605	=	$ 1,56,601.97
		Present Value of Face Value				=	$ 5,00,000	*	0.7564	=	$ 3,78,205.43

		Total									$ 5,34,807.40

b.	Issue Price		$ 5,34,807.40
	Less:Face Value		$ 5,00,000

	Premium		$ 34,807.40

c.	Amortization table:
	Month	Interest paid in cash		Interest Expense		Premium amortized		Unamortized Premium			Carrying Value of Bond
		a		b		c=a-b		d			e
	0							$ 34,807.40			$ 5,34,807.40
	1	$ 3,750		$ 3,119.71		$ 630.29		$ 34,177.11			$ 5,34,177.11
	2	$ 3,750		$ 3,116.03		$ 633.97		$ 33,543.14			$ 5,33,543.14
	3	$ 3,750		$ 3,112.33		$ 637.67		$ 32,905.48			$ 5,32,905.48
	4	$ 3,750		$ 3,108.62		$ 641.38		$ 32,264.09			$ 5,32,264.09
	5	$ 3,750		$ 3,104.87		$ 645.13		$ 31,618.96			$ 5,31,618.96
	6	$ 3,750		$ 3,101.11		$ 648.89		$ 30,970.08			$ 5,30,970.08
	7	$ 3,750		$ 3,097.33		$ 652.67		$ 30,317.40			$ 5,30,317.40
	8	$ 3,750		$ 3,093.52		$ 656.48		$ 29,660.92			$ 5,29,660.92
	9	$ 3,750		$ 3,089.69		$ 660.31		$ 29,000.61			$ 5,29,000.61
	10	$ 3,750		$ 3,085.84		$ 664.16		$ 28,336.44			$ 5,28,336.44
	11	$ 3,750		$ 3,081.96		$ 668.04		$ 27,668.41			$ 5,27,668.41
	12	$ 3,750		$ 3,078.07		$ 671.93		$ 26,996.47			$ 5,26,996.47
	13	$ 3,750		$ 3,074.15		$ 675.85		$ 26,320.62			$ 5,26,320.62
	14	$ 3,750		$ 3,070.20		$ 679.80		$ 25,640.82			$ 5,25,640.82
	15	$ 3,750		$ 3,066.24		$ 683.76		$ 24,957.06			$ 5,24,957.06
	16	$ 3,750		$ 3,062.25		$ 687.75		$ 24,269.31			$ 5,24,269.31
	17	$ 3,750		$ 3,058.24		$ 691.76		$ 23,577.55			$ 5,23,577.55
	18	$ 3,750		$ 3,054.20		$ 695.80		$ 22,881.75			$ 5,22,881.75
	19	$ 3,750		$ 3,050.14		$ 699.86		$ 22,181.89			$ 5,22,181.89
	20	$ 3,750		$ 3,046.06		$ 703.94		$ 21,477.95			$ 5,21,477.95
	21	$ 3,750		$ 3,041.95		$ 708.05		$ 20,769.91			$ 5,20,769.91
	22	$ 3,750		$ 3,037.82		$ 712.18		$ 20,057.73			$ 5,20,057.73
	23	$ 3,750		$ 3,033.67		$ 716.33		$ 19,341.40			$ 5,19,341.40
	24	$ 3,750		$ 3,029.49		$ 720.51		$ 18,620.90			$ 5,18,620.90
	25	$ 3,750		$ 3,025.29		$ 724.71		$ 17,896.18			$ 5,17,896.18
	26	$ 3,750		$ 3,021.06		$ 728.94		$ 17,167.25			$ 5,17,167.25
	27	$ 3,750		$ 3,016.81		$ 733.19		$ 16,434.05			$ 5,16,434.05
	28	$ 3,750		$ 3,012.53		$ 737.47		$ 15,696.59			$ 5,15,696.59
	29	$ 3,750		$ 3,008.23		$ 741.77		$ 14,954.82			$ 5,14,954.82
	30	$ 3,750		$ 3,003.90		$ 746.10		$ 14,208.72			$ 5,14,208.72
	31	$ 3,750		$ 2,999.55		$ 750.45		$ 13,458.27			$ 5,13,458.27
	32	$ 3,750		$ 2,995.17		$ 754.83		$ 12,703.44			$ 5,12,703.44
	33	$ 3,750		$ 2,990.77		$ 759.23		$ 11,944.21			$ 5,11,944.21
	34	$ 3,750		$ 2,986.34		$ 763.66		$ 11,180.55			$ 5,11,180.55
	35	$ 3,750		$ 2,981.89		$ 768.11		$ 10,412.44			$ 5,10,412.44
	36	$ 3,750		$ 2,977.41		$ 772.59		$ 9,639.85			$ 5,09,639.85
	37	$ 3,750		$ 2,972.90		$ 777.10		$ 8,862.75			$ 5,08,862.75
	38	$ 3,750		$ 2,968.37		$ 781.63		$ 8,081.11			$ 5,08,081.11
	39	$ 3,750		$ 2,963.81		$ 786.19		$ 7,294.92			$ 5,07,294.92
	40	$ 3,750		$ 2,959.22		$ 790.78		$ 6,504.14			$ 5,06,504.14
	41	$ 3,750		$ 2,954.61		$ 795.39		$ 5,708.75			$ 5,05,708.75
	42	$ 3,750		$ 2,949.97		$ 800.03		$ 4,908.71			$ 5,04,908.71
	43	$ 3,750		$ 2,945.30		$ 804.70		$ 4,104.02			$ 5,04,104.02
	44	$ 3,750		$ 2,940.61		$ 809.39		$ 3,294.62			$ 5,03,294.62
	45	$ 3,750		$ 2,935.89		$ 814.11		$ 2,480.51			$ 5,02,480.51
	46	$ 3,750		$ 2,931.14		$ 818.86		$ 1,661.64			$ 5,01,661.64
	47	$ 3,750		$ 2,926.36		$ 823.64		$ 838.00			$ 5,00,838.00
	48	$ 3,750		$ 2,912.00		$ 838.00		$ -0.00			$ 5,00,000.00

d.
	Journal Entries:

	Date		Account tiles and Explanation			Debit	Credit
	January 1, 2018		Cash			$ 5,34,807.40
			Bonds Payable				$ 5,00,000.00
			Premium on bonds payable				$ 34,807.40
			(To record issuance of bond)

	January 31, 2018		Interest Expense			$ 3,119.71
			Premium on bonds payable			$ 630.29
			Cash				$ 3,750
			(To record interest expense)

	December 31, 2021		Bonds Payable			$ 5,00,000.00
			Cash				$ 5,00,000.00
			(To record redemption of bond at maturity)

ekkarill92 answered 1 year ago

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