In: Accounting
On July 1, 2015, ABC Co. issued 10-year, $4,574 million maturity value, 3% coupon bonds when the market rate was 2% for a cash price of $4,994 million. Interest was payable semi-annually on Dec. 31 and June 30. ABC also issued $3,527 million face value, 20-year, zero coupon bonds on July 1, 2017 that mature June 30, 2037 for a cash price of $2,619 million. The effective market interest rate at issuance was 1.5%. ABC repurchased $1,143 million face value coupon bonds on June 30, 2020 for $1,220 million cash (after interest was paid) and $582 million in face value of the zero- coupon bonds on June 30, 2021 for a purchase price of $432 million cash. 2. Prepare amortization schedules for both bond issuances. Note interest is semi- annual for the coupon bonds and you may assume annual for the zero- coupon bonds. Use the effective interest method.
1) On July 1, 2015, ABC Co. issued 10-year, $4,574 million maturity value, 3% coupon bonds when the market rate was 2% for a cash price of $4,994 million. Interest was payable semi-annually on Dec. 31 and June 30. | ||||||
Amount in millions | ||||||
A | B | C | D | E | F | G |
Period | Interest Payment = 3%/2 x face value | Interest Expenses ((2%/2 x book value of bond Prev. yr | Amortization of Bonds Premium (B-c) | Credit Balance in bonds Premium Account | Credit Bal in Bonds Payable | Book Value of Bonds F+ E |
0 | $ 420.00 | $ 4,574.00 | $ 4,994.00 | |||
1 | $ 68.61 | $ 49.94 | $ 18.67 | $ 401.33 | $ 4,574.00 | $ 4,975.33 |
2 | $ 68.61 | $ 49.75 | $ 18.86 | $ 382.47 | $ 4,574.00 | $ 4,956.47 |
3 | $ 68.61 | $ 49.56 | $ 19.05 | $ 363.43 | $ 4,574.00 | $ 4,937.43 |
4 | $ 68.61 | $ 49.37 | $ 19.24 | $ 344.19 | $ 4,574.00 | $ 4,918.19 |
5 | $ 68.61 | $ 49.18 | $ 19.43 | $ 324.76 | $ 4,574.00 | $ 4,898.76 |
6 | $ 68.61 | $ 48.99 | $ 19.62 | $ 305.14 | $ 4,574.00 | $ 4,879.14 |
7 | $ 68.61 | $ 48.79 | $ 19.82 | $ 285.32 | $ 4,574.00 | $ 4,859.32 |
8 | $ 68.61 | $ 48.59 | $ 20.02 | $ 265.31 | $ 4,574.00 | $ 4,839.31 |
9 | $ 68.61 | $ 48.39 | $ 20.22 | $ 245.09 | $ 4,574.00 | $ 4,819.09 |
10 | $ 68.61 | $ 48.19 | $ 20.42 | $ 224.67 | $ 4,574.00 | $ 4,798.67 |
11 | $ 68.61 | $ 47.99 | $ 20.62 | $ 204.05 | $ 4,574.00 | $ 4,778.05 |
12 | $ 68.61 | $ 47.78 | $ 20.83 | $ 183.22 | $ 4,574.00 | $ 4,757.22 |
13 | $ 68.61 | $ 47.57 | $ 21.04 | $ 162.18 | $ 4,574.00 | $ 4,736.18 |
14 | $ 68.61 | $ 47.36 | $ 21.25 | $ 140.93 | $ 4,574.00 | $ 4,714.93 |
15 | $ 68.61 | $ 47.15 | $ 21.46 | $ 119.47 | $ 4,574.00 | $ 4,693.47 |
16 | $ 68.61 | $ 46.93 | $ 21.68 | $ 97.80 | $ 4,574.00 | $ 4,671.80 |
17 | $ 68.61 | $ 46.72 | $ 21.89 | $ 75.90 | $ 4,574.00 | $ 4,649.90 |
18 | $ 68.61 | $ 46.50 | $ 22.11 | $ 53.79 | $ 4,574.00 | $ 4,627.79 |
19 | $ 68.61 | $ 46.28 | $ 22.33 | $ 31.46 | $ 4,574.00 | $ 4,605.46 |
20 | $ 68.61 | $ 46.05 | $ 31.47 | $ (0.00) | $ 4,574.00 | $ 4,574.00 |
2) | ||||||
ABC also issued $3,527 million face value, 20-year, zero coupon bonds on July 1, 2017 that mature June 30, 2037 for a cash price of $2,619 million. The effective market interest rate at issuance was 1.5%. | ||||||
Amount in millions | ||||||
A | B | C | D | E | F | G |
Period | Interest Payment = 0% x face value | Interest Expenses ((2% x book value of bond Prev. yr | Amortization of Bonds discount (B-c) | Credit Balance in bonds Discount Account | Credit Bal in Bonds Payable | Book Value of Bonds F- E |
0 | $ 908.00 | $ 3,527.00 | $ 2,619.00 | |||
1 | $ - | $ 52.38 | $ (52.38) | $ 855.62 | $ 3,527.00 | $ 2,671.38 |
2 | $ - | $ 53.43 | $ (53.43) | $ 802.19 | $ 3,527.00 | $ 2,724.81 |
3 | $ - | $ 54.50 | $ (54.50) | $ 747.70 | $ 3,527.00 | $ 2,779.30 |
4 | $ - | $ 55.59 | $ (55.59) | $ 692.11 | $ 3,527.00 | $ 2,834.89 |
5 | $ - | $ 56.70 | $ (56.70) | $ 635.41 | $ 3,527.00 | $ 2,891.59 |
6 | $ - | $ 57.83 | $ (57.83) | $ 577.58 | $ 3,527.00 | $ 2,949.42 |
7 | $ - | $ 58.99 | $ (58.99) | $ 518.59 | $ 3,527.00 | $ 3,008.41 |
8 | $ - | $ 60.17 | $ (60.17) | $ 458.42 | $ 3,527.00 | $ 3,068.58 |
9 | $ - | $ 61.37 | $ (61.37) | $ 397.05 | $ 3,527.00 | $ 3,129.95 |
10 | $ - | $ 62.60 | $ (62.60) | $ 334.45 | $ 3,527.00 | $ 3,192.55 |
11 | $ - | $ 63.85 | $ (63.85) | $ 270.60 | $ 3,527.00 | $ 3,256.40 |
12 | $ - | $ 65.13 | $ (65.13) | $ 205.47 | $ 3,527.00 | $ 3,321.53 |
13 | $ - | $ 66.43 | $ (66.43) | $ 139.04 | $ 3,527.00 | $ 3,387.96 |
14 | $ - | $ 67.76 | $ (67.76) | $ 71.29 | $ 3,527.00 | $ 3,455.71 |
15 | $ - | $ 69.11 | $ (71.28) | $ 0.00 | $ 3,527.00 | $ 3,527.00 |