Question

Ivanhoe Co. sells $397,000 of 12% bonds on June 1, 2017. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2021. The bonds yield 8%. On October 1, 2018, Ivanhoe buys back $127,040 worth of bonds for $132,040 (includes accrued interest).

Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end.

Answer 1

Date	Cash Outflow	PVIFA @ 4%	PV of Cash Outflow
31-12-2017	23,820	0.961538	22,904
01-06-2018	23,820	0.924556	22,023
31-12-2018	23,820	0.888996	21,176
01-06-2019	23,820	0.854804	20,361
31-12-2019	23,820	0.821927	19,578
01-06-2020	23,820	0.790315	18,825
31-12-2020	23,820	0.759918	18,101
01-06-2021	4,20,820	0.73069	3,07,489
		Bond Value	4,50,458

Bond Amortization Schedule

Date	Beginnig Bond Value	Interest Expense	Interest Payment	Premium Amortisation	Ending Value of Bond
31-12-2017	4,50,458	18,018	23,820	5,802	4,44,656
01-06-2018	4,44,656	17,786	23,820	6,034	4,38,623
31-12-2018	4,38,623	17,545	23,820	6,275	4,32,347
01-06-2019	4,32,347	17,294	23,820	6,526	4,25,821
31-12-2019	4,25,821	17,033	23,820	6,787	4,19,034
01-06-2020	4,19,034	16,761	23,820	7,059	4,11,976
31-12-2020	4,11,976	16,479	23,820	7,341	4,04,635
01-06-2021	4,04,635	16,185	4,20,820	7,635	0