Question

On Jan 1, 2019 Noelle’s Napkin Company issues $4,000,000 8% 20 year bonds at an EFFECTIVE Interest Rate of 6% and interest payable semi-annually on June 30^th and Dec 31^st .

Required:

USE the Present Value of a $1 (lumpsum) and Present value of an Annuity to calculate the Issue value of the BOND.

1. Record the issuance of the bonds
2. Prepare the Effective Interest Schedule for 5 years
3. Record the interest entries for Jun 30^th& Dec 31^st 2019
4. What is the carrying value of the BOND on Dec 31^st 2021?

Answer 1

Table values are based on:
Face Amount	$                                            4,000,000
Interest Payment	$                                               160,000
Market Interest rate per period	3.00%
Cash Flow	Table Value(PV of 5% for 40 period)	Amount	Present Value
PV of Interest	23.11477	$                                       160,000	$3,698,363
PV of Principal	0.30656	$                                    4,000,000	$1,226,240
PV of Bonds Payable(Issue Price)			$4,924,603
	Col I	Col II	Col III	Col IV
Date	Interest Payment($4,000,000*4%)	Interest on carrying value(Bond carrying amount*3%)	Premium amortization	Bond carrying amount
Jan 1, 2019				4,924,603
Jun 30, 2019	160,000	147,738	12,262	4,912,341
Dec 31, 2019	160,000	147,370	12,630	4,899,711
Jun 30, 2020	160,000	146,991	13,009	4,886,703
Dec 31, 2020	160,000	146,601	13,399	4,873,304
Jun 30, 2021	160,000	146,199	13,801	4,859,503
Dec 31, 2021	160,000	145,785	14,215	4,845,288
Jun 30, 2022	160,000	145,359	14,641	4,830,647
Dec 31, 2022	160,000	144,919	15,081	4,815,566
Jun 30, 2023	160,000	144,467	15,533	4,800,033
Dec 31, 2023	160,000	144,001	15,999	4,784,034
Date	Accounts and explanation	Debit(in $)	Credit(in $)
Jun 30, 2019	Interest expenses	147,738
	Premium on Bond payable	12,262
	Cash		160,000
Dec 31, 2019	Interest expenses	147,370
	Premium on Bond payable	12,630
	Cash		160,000
Carrying Value of Bond as on Dec 31,2021 =$4,845,288