Question

1. ABC Company decides to use bonds as a method of debt financing. They issue 4% bonds on October 1, 2021 with a face amount of $750,000 and a maturity date of September 30, 2024. The bonds pay interest semiannually March 31 and September 30. The market rate of interest is 4.8%

Prepare an amortization table using the effective interest method related to the above. I would suggest inserting a table or Excel object into a Word document to prepare this. In addition, what should ABC record related to these bonds at its fiscal year-end of December 31, 2022?

Answer 1

	Bond Issue Price = Present value of Bond Face Value and Interest
	Face Value
	$750,000 x PV of $1 2.4%, 6
	$750,000 x 0.86736	$650,520
	Interest
	$15,000 x PVA of $1 2.4%, 6	$82,899
	$15,000 x 5.52658
	Issue Price	$733,419
1	Year	Cash Paid	Interest Expense	Discount Amortized	Carrying amount of bonds
	Oct 1, 2021				$733,419
	Mar 31, 2022	$15,000	$17,602	$2,602	$736,021
	Sep 30, 2022	$15,000	$17,665	$2,665	$738,686
	Mar 31, 2023	$15,000	$17,728	$2,728	$741,414
	Sep 30, 2023	$15,000	$17,794	$2,794	$744,208
	Mar 31, 2024	$15,000	$17,861	$2,861	$747,069
	Sep 30, 2024	$15,000	$17,931	$2,931	$750,000
	Cash Paid = $750,000 x 4% x1/2
	Discount Amortized = Interest Exp. - Cash Paid
	Interest Expense = previous carrying value x 4.8% x 1/2
2	$740,050
	[$738,686 + ($2,728/2)]