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.what should ABC record related to these bonds at its fiscal year-end of December 31, 2022?

Answer 1

1)	Semiannual	Cash Interest	Interest Expense	Amortized Amount	carrying amount
	October 1, 2021				733,420
	March 31 , 2022	15,000.00	17,602	2,602	736,022
	Sept 30, 2022	15,000.00	17,665	2,665	738,687
	March 31 , 2023	15,000.00	17,728	2,728	741,415
	Sept 30, 2023	15,000.00	17,794	2,794	744,209
	March 31 , 2024	15,000.00	17,861	2,861	747,070
	Sept 30, 2024	15,000.00	17,930	2,930	750,000
		(1000*5%)	(Carrying value* 3.96%)/2	(Cash paid - Interest expense)
2)	Total Interest expense for Year 2022
	For Jan 22 to March 22 = Carrying value as on Dec 2021* 2.4%/6*3
	=734721 * 2.4%/6*3
	8,817
	For March 22 to Sep 22 = 17665
	For Oct 22 to Dec 22 = 738687 * 2.4%/6*3
	8,864
	Total Interest exp for 2022 = 8817 + 17665+8864
	35346
	Working Note:
	Calculate Value of Bond
	Semiannual	Interest	PVF @2.4%	Present value
	0
	1	15,000	0.97656	14,648
	2	15,000	0.95367	14,305
	3	15,000	0.93132	13,970
	4	15,000	0.90949	13,642
	5	15,000	0.88818	13,323
	6	765,000	0.86736	663,532
		Total issue price	733,420
	Calculate carrying value as on December
	Semiannual	Cash Interest	Interest Expense	Amortized Amount	carrying amount
	October 1, 2021				733,420
	Dec , 2021	7,500	8,801	1,301	734,721
	March 31 , 2022	7,500	8,817	1,317	736,038
	Sept 30, 2022	15,000.00	17,665	2,665	738,703
	Dec, 2022	7,500.00	8,864	1,364	740,067
		30,000	35,346	5,346