Question

Patrick Corporation issued 5% bonds on January 1, 2018, with a face amount of $1,000,000, the market rate for bonds of similar risk and maturity was 4%. The bonds mature in 20 years and pay interest semi­ annually on June 30 and December 31.

Create an Excel spreadsheet to answer the following requirements and submit a printout of your Excel formulas as well as a handwritten copy of your solutions to the requirements listed below.

Required:

1. Determine the price of the bonds at January 1, 2018.
2. Prepare the journal entry to record the issuance of the bonds on January 1, 2018.
3. Prepare a complete amortization schedule that determines interest at the effective rate each period using the format listed below:

Amortization Schedule

Date      Cash Interest    Effective Interest    Decrease in Balance   Outstanding Balance

4. Prepare the journal entry to record interest on June 30, 2018.
5. Prepare the appropriate journal entry when the bonds mature in 20 years.

Answer 1

1
	Present value of face value	0.20829 x $1,000,000 =	$208,290
	Present value of coupon	19.79277 x $25,000 =	$494,819
	Issue price of the bond on January 1, 2018		$703,109
2
Date	Accounts Titles	Debit	Credit
Jan 1, 2018	Cash	$703,109
	Discount on Bonds Payable	$296,891
	Bonds Payable		$1,000,000
	(To record the issuance of the bonds)
3
	Date	Cash Interest (A)	Effec. Int. (B)	Dec. in Bal. (c)	Outstanding Bal. (D)
			(B) = (D) x 4%	(c) = (B) - (A)
	01/01/18				$703,109
	06/30/18	$25,000	$28,124	$3,124	$706,233
	12/31/18	$25,000	$28,249	$3,249	$709,483
	06/30/19	$25,000	$28,379	$3,379	$712,862
	12/31/19	$25,000	$28,514	$3,514	$716,376
	06/30/20	$25,000	$28,655	$3,655	$720,032
	12/31/20	$25,000	$28,801	$3,801	$723,833
	06/30/21	$25,000	$28,953	$3,953	$727,786
	12/31/21	$25,000	$29,111	$4,111	$731,898
	06/30/22	$25,000	$29,276	$4,276	$736,173
	12/31/22	$25,000	$29,447	$4,447	$740,620
	06/30/23	$25,000	$29,625	$4,625	$745,245
	12/31/23	$25,000	$29,810	$4,810	$750,055
	06/30/24	$25,000	$30,002	$5,002	$755,057
	12/31/24	$25,000	$30,202	$5,202	$760,260
	06/30/25	$25,000	$30,410	$5,410	$765,670
	12/31/25	$25,000	$30,627	$5,627	$771,297
	06/30/26	$25,000	$30,852	$5,852	$777,149
	12/31/26	$25,000	$31,086	$6,086	$783,235
	06/30/27	$25,000	$31,329	$6,329	$789,564
	12/31/27	$25,000	$31,583	$6,583	$796,146
	06/30/28	$25,000	$31,846	$6,846	$802,992
	12/31/28	$25,000	$32,120	$7,120	$810,112
	06/30/29	$25,000	$32,404	$7,404	$817,516
	12/31/29	$25,000	$32,701	$7,701	$825,217
	06/30/30	$25,000	$33,009	$8,009	$833,226
	12/31/30	$25,000	$33,329	$8,329	$841,555
	06/30/31	$25,000	$33,662	$8,662	$850,217
	12/31/31	$25,000	$34,009	$9,009	$859,226
	06/30/32	$25,000	$34,369	$9,369	$868,595
	12/31/32	$25,000	$34,744	$9,744	$878,339
	06/30/33	$25,000	$35,134	$10,134	$888,472
	12/31/33	$25,000	$35,539	$10,539	$899,011
	06/30/34	$25,000	$35,960	$10,960	$909,971
	12/31/34	$25,000	$36,399	$11,399	$921,370
	06/30/35	$25,000	$36,855	$11,855	$933,225
	12/31/35	$25,000	$37,329	$12,329	$945,554
	06/30/36	$25,000	$37,822	$12,822	$958,376
	12/31/36	$25,000	$38,335	$13,335	$971,711
	06/30/37	$25,000	$38,868	$13,868	$985,580
	12/31/37	$25,000	$39,420	$14,420	$1,000,000
4
Date	Accounts Titles	Debit	Credit
June 1, 2018	Bond Interest Expense	$28,124
	Discount on Bonds Payable		$3,124
	Cash		$25,000
5
Date	Accounts Titles	Debit	Credit
Dec 31, 2037	Bonds Payable	$1,000,000
	Cash		$1,000,000