Question

Use financial formulas in Excel to show work for Requirement #1 and #5 of each part

Bill Corporation issued six-year, 7% bonds with a total face value of $1,250,000 on January 1, 2019. Interest is paid semi-annually on June 30 and December 31. The market rate of interest on this date was 10.0%. Bill uses the effective interest rate method.

Required:

1. Determine the proceeds of the bond sale on 1/1/19. Explain your method of calculation.

2. Using the present value of a dollar table (found in Appendix E of your text), what factor would you use to calculate the present value of the face value of the bond?

3. Using the present value of an ordinary annuity table (found in Appendix E of your text), what factor would you use to calculate the present value of the coupon payments? For your own benefit, you may want to demonstrate that the price of the bonds is the same using the factors from the table that you got in Excel.

4. Did this bond sell at a premium or discount?

5. Using Excel, prepare a six-year bond amortization schedule for these bonds. There are examples in your notes and posted on D2L. Use formulas and reference cells in Excel to show how you calculate your numbers.

6. Prepare journal entries to record (1) the sale of the bonds on January 1, 2019, (2) the interest payment for the period ended June 30, 2019 and, (3) the final interest and face value payment at maturity on December 31, 2024.

7. Show how the balance sheet would report the bond liability and related premium/discount on June 30, 2020.

Answer 1

Part 1
Table values are based on:
n=	12
i=	5.0%
Cash Flow	Table Value	Amount	Present Value
Interest	8.86325	$43,750	$3,87,767
Principal	0.55684	$12,50,000	$6,96,050
Price of Bond			$10,83,817
Discount on Bonds =$1,250,000 - $1,083,817 =$166,183
Part 2
Amortization table
Date	Interest Payment($1,250,000*3.5%)	Interest expenses(Bond carrying amount*5%)	Discount amorrtization	Unamortized discount	Bond carrying amount
Col I	Col II	Col III	Col IV(Col III - Col II)	Col V(Col VI - Col IV)	Col VI
01-Jan-19				1,66,183	10,83,817
30-Jun-19	43,750	54,191	10,441	1,55,742	10,94,258
30-Dec-19	43,750	54,713	10,963	1,44,779	11,05,221
30-Jun-20	43,750	55,261	11,511	1,33,268	11,16,732
30-Dec-20	43,750	55,837	12,087	1,21,182	11,28,818
30-Jun-21	43,750	56,441	12,691	1,08,491	11,41,509
30-Dec-21	43,750	57,075	13,325	95,165	11,54,835
30-Jun-22	43,750	57,742	13,992	81,174	11,68,826
30-Dec-22	43,750	58,441	14,691	66,482	11,83,518
30-Jun-23	43,750	59,176	15,426	51,056	11,98,944
30-Dec-23	43,750	59,947	16,197	34,859	12,15,141
30-Jun-24	43,750	60,757	17,007	17,852	12,32,148
30-Dec-24	43,750	61,602	17,852	0	12,50,000
Part 3 & 4
	Date	Accounts and explanation	Debit(in $)	Credit(in $)
	01-Jan-19	Cash	10,83,817
		Discount on Bonds Payable	1,66,183
		Bonds Payable		12,50,000
	30-Jun-19	Interest expenses	54,191
		Cash		43,750
		Discount on Bonds Payable		10,441
	30-Dec-24	Interest expenses	61,602
		Cash		43,750
		Discount on Bonds Payable		17,852
	30-Dec-24	Bonds Payable	12,50,000
		Cash		12,50,000
	Balance sheet extract as on June 30,2020
	Long term liabilities	$12,50,000
Less:	Unamortized Discount	$1,33,268	$11,16,732