Question

Bonita Co. is building a new hockey arena at a cost of $2,620,000. It received a downpayment of $450,000 from local businesses to support the project, and now needs to borrow $2,170,000 to complete the project. It therefore decides to issue $2,170,000 of 11%, 10-year bonds. These bonds were issued on January 1, 2016, and pay interest annually on each January 1. The bonds yield 10%. Prepare a bond amortization schedule up to and including January 1, 2020, using the effective interest method.

Answer 1

Bonds issue price is calculated by ADDING the:
Discounted face value of bonds payable at market rate of interest, and
Discounted Interest payments amount (during the lifetime) at market rate of interest.

	Annual Rate	Applicable rate		Face Value	$ 2,170,000.00
Market Rate	10.00%	10.00%		Term (in years)	10
Coupon Rate	11.00%	11.00%		Total no. of interest payments	10

Calculation of Issue price of Bond
	Bond Face Value		Market Interest rate (applicable for period/term)
PV of	$      2,170,000.00	at	10.0%	Interest rate for	10	term payments
PV of $1	0.38554329
PV of	$      2,170,000.00	=	$ 2,170,000.00	x	0.385543289	=	$       836,628.94	A
Interest payable per term	at	11.0%	on	$         2,170,000.00
Interest payable per term	$          238,700.00
PVAF of 1$	for	10.0%	Interest rate for	10	term payments
PVAF of 1$	6.144567
PV of Interest payments	=	$           238,700.00	x	6.144567106	=		$   1,466,708.17	B
				Bond Value (A+B)			$ 2,303,337

Interest on bond is more than market rate hence bond is issued at premium

Amortization Schedule
Period	Cash payment	Interest expense	Premium on Bonds payable	Carrying Value of Bond
Issued			$      (133,337.11)	$   2,303,337.11
Dec 31 2016	$             238,700.00	$            230,333.71	$          (8,366.29)	$   2,294,970.82
Dec 31 2017	$             238,700.00	$            229,497.08	$          (9,202.92)	$   2,285,767.90
Dec 31 2018	$             238,700.00	$            228,576.79	$        (10,123.21)	$   2,275,644.69
Dec 31 2019	$             238,700.00	$            227,564.47	$        (11,135.53)	$   2,264,509.16
Dec 31 2020	$             238,700.00	$            226,450.92	$        (12,249.08)	$   2,252,260.07
Dec 31 2021	$             238,700.00	$            225,226.01	$        (13,473.99)	$   2,238,786.08
Dec 31 2022	$             238,700.00	$            223,878.61	$        (14,821.39)	$   2,223,964.69
Dec 31 2023	$             238,700.00	$            222,396.47	$        (16,303.53)	$   2,207,661.16
Dec 31 2024	$             238,700.00	$            220,766.12	$        (17,933.88)	$   2,189,727.27
Dec 31 2025	$             238,700.00	$            218,972.73	$        (19,727.27)	$   2,170,000.00

Answer may vary a little bit due to round off of PV factors