Question

In this assignment you will be working with bonds. You will compute bond issue price, then make an amortization table. You will then do a few select journal entries using your amortization table.
Here is the data:
•   Bond issue principal amount: 500,000
•   Semi-annual interest payments at the end of every six months
•   Term = 5 years
•   Stated rate = 6%
•   Interest payment = ?
Scenarios:
1.   Market rate = 4%
2.   Market rate = 6%
3.   Market rate = 8%
Requirements:
For each of the three scenarios, complete a separate tab in Excel. Include the data for your problem in each sheet. Compute the interest payment. It is the same amount in each scenario. Then:
1.   Compute bond issue price
2.   Create an amortization table using the effective interest method for all 10 payment periods.
3.   Below your amortization table show journal entries for:
a.   Bond Issue
b.   First two payments (periods 1 and 2)
c.   Payment at the end of the 6th period.
d.   Settlement of the bond after last payment. Note: do not include the final payment journal entry; only include the entry for the settlement of bond.
4.   Below your journal entries, create an amortization table using the same bond issue price as above. Use the straight-line method of amortization for this second table.

Answer 1

1

B5 1 А В C D E F G Н J K L M 1 no period account titles and explanation $ 500,000 2 principal amount semiannual periods debit credit 10 $544,913 semiannual interest payment $ 15,000 cash premium on bonds payable bonds payable (to record bonds issue) 4 За $544,913 bond issue price $ 44,913 1 $ 500,000 6 7 2 amortization schedule interest expense interest payment premium amortization carrying value of bonds period $ 10,898 S544,913 $540,811 9 0 3b 1 interest expense S 10,898 $10,816 $10,733 $10,647 $ 10,560 S 4,102 $4,184 $4,267 $ 4,353 $ 4,440 $ 4,529 $4,619 $4,712 $4,806 S4,902 $15,000 $15,000 15,000 S 15,000 S 15,000 S 15,000 S 15,000 15,000 S 15,000 $15,000 premium on bonds payable cash $ 4,102 10 1 - 536,627 $15,000 11 2 $532,360 $528,007 $523,567 $519,039 $ 514,419 $509,708 S504,902 S 500,000 (to record interest payment) 12 3 13 4 $ 10.816 14 3b 2 interest expense S 10,471 $10,381 $10,288 $10,194 $10,098 premium on bonds payable S 4,184 15 6 cash (to record interest payment) $15,000 16 7 17 8 18 9 $ 10,471 19 10 Зс 6 interest expense premium on bonds payable S 4,529 20 cash (to record interest payment) $15,000 21 amortization schedule interest expense interest payment premium amortization carrying value of bonds 22 period S 544,913 540,422 23 0 $ 19,491 $15,000 $ 15,000 $4,491 $4,491 $ 10,098 $ 4,902 24 3d 10 interest expense $19,491 $ 535,930 25 2 premium on bonds payable S 531,439 $526,948 cash (to record interest on settlement date) $ 19,491 $15,000 $15,000 $15.000 $ 4,491 $15,000 26 $ 4,491 $ 19,491 27 4 $19,491 $19,491 $ 19,491 $4,491 $522,456 28 $ 15,000 bonds payable 3d $4,491 $517,965 $513,474 500,000 29 6 10 cash (to record bond repayment) $ 15,000 $ 4,491 $4,491 $ 4,491 $4,491 $500,000 30 7 $ 19,491 $19,491 S15,000 $ 15,000 $508,983 31 8 $504,491 500,000 32 9 $ 19,491 $15,000 33 10 34 35 Market rate = 4% Market rate =6% Market rate = 8%

2

fix X B5 1 н A C D E F G I K м 1 no period account titles and explanation 500,000 2 principal amount debit credit semiannual periods semiannual interest payment 3 10 $ 15,000 S 500,000 3a cash bonds payable $ 500,000 4 За 0 $500,000 5 1. bond issue price (to record bonds issue) 6 7 2 amortization schedule interest expense interest payment carrying value of bonds |3ь interest expense $15,000 8 1 period S 500,000 $500,000 $500,000 cash S 15,000 9 0 $15,000 (to record interest payment) $10,000 $ 10,000 10 1 $15,000 $ 15.000 $ 15,000 11 2 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 500,000 $500,000 $500,000 $500,000 $500,000 |3Ь interest expense $15,000 12 2 15,000 13 4. cash (to record interest payment) $ 15,000 14 15 c 6 S15,000 $15,000 interest expense $15,000 16 7 Зс 6 S 10,000 S 10,000 S 10,000 $15.000 500,000 cash 15,000 17 8 S500,000 $500,000 (to record interest payment) $15,000 $ 15,000 18 9 19 10 3d interest expense $15,000 20 10 cash 15,000 21 amortization schedule interest expense interest payment carrying value of bonds (to record interest on settlement date) 22 period $ 500,000 S500,000 500,000 23 bonds payable cash $500,000 $ 15,000 S 15,000 $15,000 $15,000 $15,000 $15,000 3d 24 1 10 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $ 500,000 25 2 $500,000 $500,000 $500,000 $500,000 $500,000 S500,000 500,000 $500,000 (to record bond repayment) 26 3 27 4 28 $15,000 S 15,000 S 15,000 $15,000 29 6 30 7 31 8 32 9 $15,000 33 10 34 35

3

B5 1 A В C D E G Н I K M N 1 no period account titles and explanation $500,000 debit 2 principal amount credit semiannual periods 10 $ 15,000 S 459,446 |За semiannual interest payment cash discount on bonds payable bonds payable (to record bonds issue) S459,446 4 0 bond issue price $ 40,554 1 $ 500,000 6 7 amortization schedule interest expense interest payment discount amortization carrying value of bonds period S459,446 S 462,823 $18,378 3b 1 interest expense discount on bonds payable $3,378 S15,000 $ 18,377.82 S 18,512.93 S 18,653.45 S 18,799.59 $ 15,000 S 15,000 S 3,378 S 3,513 10 $466,336 cash (to record interest payment) 11 2 S 15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 S 15,000 $ 3,653 $ 469,990 12 3 $3,800 $ 473,789 $ 477,741 13 4 $18,951.57 $3,952 interest expense 18,513 14 3b $ 3,513 $15,000 $ 19,109.64 $ 19,274.02 $4,110 $ 481,851 $486,125 discount on bonds payable 15 6 $4,274 cash (to record interest payment) 16 $ 19,444.98 S 19,622.78 $ 19,807.69 $4,445 $ 490,570 17 8 S4,623 S4,808 $ 495,192 18 9 $500,000 interest expense $19,110 19 10 Зс 6 $ 4,110 $15,000 discount on bonds payable 20 cash (to record interest payment) 21 4. amortization schedule interest expense interest payment discount amortization 22 period carrying value of bonds $ 459,446 23 0 $ 15,000 S 15,000 15,000 15,000 S 15,000 15,000 S 15,000 $ 15,000 15,000 S 15,000 $ 19,055 S 4,055 S 4,055 S 4,055 S 4,055 $ 4,055 S4,055 S4,055 S4,055 S 4,055 S 4,055 $463,501 $467,556 $ 471,612 $ 475,667 $ 479,723 $ 483,778 $ 487,834 $491,889 $ 495,945 interest expense $19,808 24 1 3d 10 discount on bonds payable S 19,055 S 19,055 $19,055 $19,055 $19,055 $4,808 25 2 26 cash (to record interest on settlement date) $ 15,000 27 4 28 5 500,000 bonds payable 29 6 3d 10 $500,000 $19,055 cash 30 7 (to record bond repayment) $ 19,055 31 8 $ 19,055 32 9 $ 19,055 $500,000 33 10 34 35

In case you have any query, kindly ask in comments.