Question

Prepare an amortization schedule for the 1st and 2nd years (effective interest method) using the following data:

1. On January 1, 2010 XYZ Co. issued $3,000,000, 6%, 10 year bonds, interest payable on June 30th and December 31st to yield 5%. Use the following format and round to the nearest dollar (may have small rounding error). The bonds were issued for $3,233,834.

Date Cash paid Interest expense Amortization Bond Carry Value

2. Show how this bond would be reported on the balance sheet on 12/31/11.

Answer 1

1)
	Amortization Schedule:
	Date	Cash Paid	Interest Expense	Amortization	Bonds Carrying Value
	January 1, 2010				$                         32,33,834
	June 30, 2010	$             90,000	$                  80,846	$            9,154	$                         32,24,680
	December 31, 2010	$             90,000	$                  80,617	$            9,383	$                         32,15,297
	June 30, 2011	$             90,000	$                  80,382	$            9,618	$                         32,05,679
	December 31, 2011	$             90,000	$                  80,142	$            9,858	$                         31,95,821
	Working:
	Semi annual cash paid	=	Par Value x Semi Annual Coupon Interest
		=	$            30,00,000	x	3%
		=	$                  90,000
	Semi annual Interest expense	=	Beginning Book Value x Semi annual yield
		=	$            32,33,834	x	2.50%
		=	$                  80,846
2)
	Balance Sheet
	on 12/31/11
	(Partial)
	Non-Current Liabilities:
	Bonds Payable		$ 30,00,000
	Add:Premium on bonds payable		$              1,95,821
	Bonds Carrying Value		$ 31,95,821