Question

On November 1, 2020, Yardley Distributors Inc. issued a $744,000, 7%, two-year bond. Interest is to be paid semiannually each May 1 and November 1. (Use TABLE 14A.1 and TABLE 14A.2.). Note: Use table values for PV calculations. (Use appropriate factor(s) from the tables provided.)

Required:

a. Calculate the issue price of the bond assuming a market interest rate of 10% on the date of the bond issue. (Do not round intermediate calculations. Round the final answer to the nearest whole dollar. Enter all the amounts as positive values.)

Issue price of the bond ?

b. Using the effective interest method, prepare an amortization schedule. (Do not round intermediate calculations. Round the final answers to the nearest whole dollar. Enter all the amounts as positive values.)

Period

Ending Cash

Interest

Paid Period Interest

Expense Discount Amortization Unamortized

Discount Carrying Value

Nov 1/20

May 1/21

Nov 1/21

May 1/22

Nov 1/22 0 0

Totals $0 $0 $0

Answer 1

A-	value of bond = Using Present value function in MS Excel	pv(rate,nper,pmt,fv,type)	rate = 10/2 =5% nper =2*2 =4 pmt = 744000*7%*1/2 = -26040   fv =-744000 type =0	PV(5%,4,-26040,-744000,0)	$704,427.19
	Issue price of bond		$704,427.19
	Discount on bonds payable	744000-704427.19	39572.81
B-	Amortization table
	period ending	cash interest paid = face value*coupon rate*1/2	Interest expense = carrying value*market rate*1/2	discount amortization = interest expense-cash interest paid	unamortized discount = beginning balance-discount amortization	carrying value = beginning balance+discount amortization
	Nov 1 2020				39572.81	$704,427.19
	May 1 2021	26040	$35,221.36	$9,181.36	$30,391.45	$713,608.55
	Nov 1 2021	26040	$35,680.43	$9,640.43	$20,751.02	$723,248.98
	May 1 2022	26040	$36,162.45	$10,122.45	$10,628.57	$733,371.43
	Nov 1 2022	26040	$36,668.57	$10,628.57	$0.00	$744,000.00