Question

Bridgeport Corporation wished to raise money for a series of upcoming projects. On July 1, 2017, the company issued bonds with a face value of $5,645,000 due in 5 years, paying interest at a face rate of 8% on January 1 and July 1 each year. The bonds were issued to yield 6%. Bridgeport used the effective interest method of amortization for bond discounts or premiums. The company’s year-end was September 30.

Prepare a complete Bond Premium/Discount Amortization Schedule (i.e. all five years) for Bridgeport Corporation.

Answer 1

Amortization table
Period	Cash payment	Interest expense	Premium on Bonds payable	Carrying Value of Bond
Issued at the end of 2011			$         (4,81,530)	$        61,26,530
Jan 1 2018	$ 2,25,800.00	$    1,83,795.90	$       (42,004.10)	$ 60,84,525.85
July 1 2018	$ 2,25,800.00	$    1,82,535.78	$       (43,264.22)	$ 60,41,261.62
Jan 1 2019	$ 2,25,800.00	$    1,81,237.85	$       (44,562.15)	$ 59,96,699.47
July 1 2019	$ 2,25,800.00	$    1,79,900.98	$       (45,899.02)	$ 59,50,800.46
Jan 1 2020	$ 2,25,800.00	$    1,78,524.01	$       (47,275.99)	$ 59,03,524.47
July 1 2020	$ 2,25,800.00	$    1,77,105.73	$       (48,694.27)	$ 58,54,830.20
Jan 1 2021	$ 2,25,800.00	$    1,75,644.91	$       (50,155.09)	$ 58,04,675.11
July 1 2021	$ 2,25,800.00	$    1,74,140.25	$       (51,659.75)	$ 57,53,015.36
Jan 1 2022	$ 2,25,800.00	$    1,72,590.46	$       (53,209.54)	$ 56,99,805.83
July 1 2022	$ 2,25,800.00	$    1,70,994.17	$       (54,805.83)	$ 56,45,000.00

Working’

Bonds issue price is calculated by ADDING the:

Discounted face value of bonds payable at market rate of interest, and

Discounted Interest payments amount (during the lifetime) at market rate of interest.

	Annual Rate	Applicable rate		Face Value	$   56,45,000.00
Market Rate	6.00%	3.00%		Term (in years)	5
Coupon Rate	8.00%	4.00%		Total no. of interest payments	10

Calculation of Issue price of Bond
	Bond Face Value		Market Interest rate (applicable for period/term)
PV of	$ 56,45,000	at	3.00%	Interest rate for	10	term payments
PV of $1	0.74409
PV of	$ 56,45,000	=	$ 56,45,000	x	0.74409	=	$ 42,00,410.15	A
Interest payable per term	at	4%	on	$        56,45,000
Interest payable per term	$    2,25,800
PVAF of 1$	for	3.0%	Interest rate for	10	term payments
PVAF of 1$	8.53020
PV of Interest payments	=	$      2,25,800.00	x	8.53020	=		$ 19,26,119.80	B
				Bond Value (A+B)			$ 61,26,529.95