Question

Example 3 - interest bearing notes - note issued at a discount
Face value	400,000.00
Stated rate	5.00%
Market rate	12.00%
Discount	127,785.00
	Amortization Table
Period	Beginning	Cash rec'd	Int income	Ending
1	272,215.00	20,000.00	32,665.80	284,880.80
2	284,880.80	20,000.00	34,185.70	299,066.50
3	299,066.50	20,000.00	35,887.98	314,954.48
4	314,954.48	20,000.00	37,794.54	332,749.01
5	332,749.01	20,000.00	39,929.88	352,678.89
6	352,678.89	20,000.00	42,321.47	375,000.36
7	375,000.36	20,000.00	45,000.04	400,000.40	Rounding of $0.40.
Total		140,000.00	267,785.40
Journal entries:		Year 1		Year 2		Year 3		Year 4		Year 5		Year 6		Year 7
		DR	CR	DR	CR	DR	CR	DR	CR	DR	CR	DR	CR	DR	CR	Total
Cash		20,000.00		20,000.00		20,000.00		20,000.00		20,000.00		20,000.00		20,000.00		140,000.00
Discount amortization		12,665.80		14,185.70		15,887.98		17,794.54		19,929.88		22,321.47		25,000.04		127,785.40
Interest revenue			32,665.80		34,185.70		35,887.98		37,794.54		39,929.88		42,321.47		45,000.04	267,785.40

You can use the above to build an amortization table and journal entries for a note issued at a premium.  Try it.  Build your own assumptions.  10 points extra credit.

Face value

Pick an amount in hundreds of thousands between $100,000 and $1,200,000 (such as $300,000 or $700,000)

Stated rate

Pick at rate (whole number) between 3% and 8% (such as 4% or 7%)

Market rate

Pick at rate (whole number) between 3% and 8% (such as 4% or 7%)

Premium

Calculate this amount

Periods

Pick a whole year between 5 and 10 years

Follow the example on the handout.  You'll have to look up the factors yourself.  Show your work.

Show your calculation of the present value of the note (2.5 points)

Record the journal entry to issue the note (2.5 points)

Show your amortization table (follow my example) (2.5 points)

Show your journal entries (follow my example) (2.5 points)

Answer 1