Question

Chapter 9 - Part 1 Winter 2020 The following information is provided for LAX, LLC on January 1, 2020: State Bank installment loan Principal: $ 2,500,000 Rate: 5.30% Term: 5 years Payment: $ 582,234 Payment dates: annual, end of year Par: Stated rate: Market rate: Term & coupons: Selling price: Discount: Bond issuance 1,000,000 5.00% 5.20% 3 years 994,510 5,490 semi-annual Interest (beg. bal. x rate) Note reduction Ending note balance $ 2,500,000 1. Prepare the installment loan amortization table: Beginning note Date balance Annual payment 01/01/20 12/31/20 2,500,000 582,234 12/31/21 582,234 12/31/22 582,234 12/31/23 582,234 12/31/24 582,234 2. Record the note and the first annual installment payment: Accounts Debits Credits Date 01/01/20 12/31/20 Discount amortization - Total discount balance $ 5,490 Ending note balance 994,510 $ 3. Prepare the bond amortization table using the straight-line method: Beginning Coupon Interest exp. Date carrying value _payments (coup.+amort.) 01/01/20 06/30/20 994,510 12/31/20 25,000 06/30/21 25,000 12/31/21 25,000 06/30/22 25,000 12/31/22 25,000 25,000 4. Record the sale of the bonds and the first semi-annual coupon payment: Accounts Debits Date 01/01/20 ts - Credits Credits 06/30/20

Answer 1

Answer-1:

$ Beginning Annual Interest Note Date Note Bal. Payment (Beg Bal.*rate) reduction 1/1/2020 12/31/2020 $ 2,500,000 $ 582,234 $ 132,500 $ 449,734 12/31/2021 2,050,266 582,234 108,664 473,570 12/31/2022 1,576,696 582,234 83,565 498,669 12/31/2023 1,078,027 582,234 57,135 525,099 12/31/2024 552,928 582,234 29,305 552,929 Ending Note Bal. 2,500,000 2,050,266 1,576,696 1,078,027 552,928 (0) 664

Answer-2:

$2,500,000 1/1/2020 Cash Notes payable $ 2,500,000 12/31/2020 Notes payable Interest expense Cash 449734 132500 582234

Answer-3:

Beginning Date carrying value 1/1/2020 6/30/2020 $ 994,510 12/31/2020 995,425 6/30/2021 996,340 12/31/2021 997,255 6/30/2022 998,170 12/31/2022 999,085 SCHEDULE OF BOND DISCOUNT AMORTIZATION Coupon Interest exp. Discount Total discount payments (coup+amort.) amortization balance $ $ 25,000 $ 25,915 $ 915 25,000 25,915 915 25,000 25,915 915 25,000 25,915 915 25,000 25,915 915 25,000 25,915 915 5,490 4,575 3,660 2,745 1,830 915 Ending Note Balance $ 994,510 995,425 996,340 997,255 998,170 999,085 1,000,000

Answer-4:

1/1/2020 Cash Discount on Bonds payable Bonds payable 994,510 5,490 1,000,000 25,915 6/30/2020 Bond interest expense Discount on bonds payable Cash 915 25,000