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

	Bonds Face Value		$750,000
	Interest		4%		Semi-annually
	Period		3		Years
	Yield		4.8%
	Price of Bonds -
	N	6
	I	2.4
	PV	$733,420
	FV	$750,000
	PMT	$15,000
	Discount	$16,580
To be Amortized each 6 month	$2,763.30
	PV	FV/(1+i)^n+PMT*((1-(1+i)^-n))/i
	PV	750000/(1.024)^6+15000*((1-(1.024)^-6))/.024
	PV	733,420
Date	Issue Price	Interest Paid(Accured)	Discount Amortized	Interest Expense	Carrying Value
31/12/2021	$                 733,420	$                                                                              7,500	$1,381.65	$8,881.65	$     734,801.87
31/3/2022		$                                                                              7,500	$1,381.65	$8,881.65	$     736,183.51
30/9/2022		$                                                                           15,000	$                     2,763.30	$                  17,763.30	$     738,946.81
31/12/2022		$                                                                        7,500.00	$                     1,381.65	$                     8,881.65	$     740,328.46
31/3/2023		$                                                                              7,500	$1,381.65	$8,881.65	$     741,710.11
30/9/2023		$                                                                           15,000	$                     2,763.30	$                  17,763.30	$     744,473.41
31/12/2023		$                                                                        7,500.00	$                     1,381.65	$                     8,881.65	$     745,855.05
31/3/2024		$                                                                              7,500	$1,381.65	$8,881.65	$     747,236.70
30/9/2024		$                                                                           15,000	$                     2,763.30	$                  17,763.30	$     750,000.00
At 31- Dec 2022
		Bonds Value	$750,000
		Less: Discount on Bonds	$9,671.54
		Carrying Value of Bonds	$740,328.46
		Interest Accured	$                     7,500.00
		Discount to amortized	$                     1,381.65
		total interest expense	$                     8,881.65