Question

On February 1, 2021, Cromley Motor Products issued 6% bonds, dated February 1, with a face amount of $65 million. The bonds mature on January 31, 2025 (4 years). The market yield for bonds of similar risk and maturity was 8%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $65,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 2-b. Prepare amortization schedules that indicate Barnwell's effective interest revenue for each interest period during the term to maturity excubai La Cabra Complete this question by entering your answers in the tabs below.

Answer 1

Answer:

Payment Number	Cash Payment	Effective Interest	Increase in Balance	Outstanding Balance
				$60,624
1	$1,950	$2,424.96	$474.96	$61,099
2	$1,950	$2,443.96	$493.96	$61,593
3	$1,950	$2,463.72	$513.72	$62,107
4	$1,950	$2,484.27	$534.27	$62,641
5	$1,950	$2,505.64	$555.64	$63,197
6	$1,950	$2,527.86	$577.86	$63,774
7	$1,950	$2,550.98	$600.98	$64,375
8	$1,950	$2,575.01	$625.01	$65,000
Total	$15,600	$19,976	$4,376

Cash payment = $65,000 x 6% x 6/12 = $1,950

Effective interest = Preceding outstanding balance x 4%

Increase in balance = Effective interest - Cash payment

Outstanding balance = Preceding balance + Increase in balance

Calculations:

Interest payment = $65,000 x 3% = $1,950

Present value of interest payments	$13,129
[$1,950 x 6.73274 present value annuity factor (4%, 8 years)]
Present value of face value	$47,495
[$65,000 x 0.73069 present value factor (4%, 8 years)]
Issue price	$60,624