Question

Smith Company borrows cash by issuing a bond payable with the following terms:
 $8,000,000, 8% bond
 Issued on 1/1/21
 Matures in 12 years
 Semi-annual interest payments on 6/30 and 12/31 of each year
 Market rate for bonds of this type was 7% at the time of their issue
Required
a. Compute the cash proceeds from the issuance of the bond.
b. Create an effective interest amortization table in Excel for the entire life of the bond payable
using the following columns: payment number, payment date, beginning carrying value,
effective interest rate, interest expense, cash (interest paid), discount/premium on bond
payable (amortization amount), and ending carrying value.
The goal of any bond amortization spreadsheet it to prove that, at the maturity date of the
bond, the premium or discount has been reduced to zero and the remaining carrying value of
the bond is its face value (the amount to be paid in full at maturity). These spreadsheets are
important in practice because they serve as the basis for journal entries for every interest
payment date and for adjusting journal entries at each year-end.
NOTE: You should use normal Excel calculations and formulas for the completion of this
assignment. However, you are NOT allowed to use a pre-built Excel template
c. Once your table is complete, tell me:
 What is the journal entry on 1/1/21 to issue this bond?
 What is the journal entry on 6/30/21, the first interest payment date?
 What is the journal entry on 12/31/21, the second interest payment date?

Answer 1

Answer: a.Computation of Cash Proceeds Period Cash Flows PVF@ 3.5% 1-24 320000 24 80000001 Cash proceeds From Issuance of Bonds Present Value 16.0583 5138656 0.43791 3503200 8641856) effective Interest Rate Interest Expenses Cash Interest Premium on Bond Payable Amortization Amount) Ending Carrying value b. Payment Payment Date Begining carrying Value Number 0 1/1/21 1 6/30/21 8641856 2 12/31/21 8624320.96 3 6/30/22 8606172.194 4 12/31/22 8587388.22 5 6/30/23 8567946.808 6 12/31/23 8547824.9461 7 6/30/24 8526998.819 8 12/31/24 8505443.778 9 6/30/25 8483134.31 10 12/31/25 8460044.0111 11 6/30/26 8436145.552 12 12/31/26 8411410.646 13 6/30/27 8385810.019 14 12/31/27 8359313.369 15 6/30/28 8331889.337 16 12/31/28 8303505.464 17 6/30/29 8274128.155 18 12/31/29 8243722.641 19 6/30/30 8212252.933 20 12/31/30 8179681.786 21 6/30/31 8145970.648 22 12/31/31 8111079.621 23 6/30/32 8074967.408 24 12/31/32 8037591.2671 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 320000 320000 320000 3200001 320000 320000 320000 320000 320000 320000 320000 302464.96 301851.2336 301216.0268 300558.5877 299878.1383 299173.8731 298444.9587 297690.5322 296909.7009 296101.5404 295265.0943 294399.3726 293503.3507 292575.9679 291616.1268 290622.6912 289594.4854 288530.2924 287428.8527 286288.8625 285108.9727 283887.7867 282623.8593 281315.6943) 8641856 8624320.96 8606172.194 8587388.22 8567946.808 8547824.946 8526998.819 8505443.778 8483134.31 8460044.011 8436145.552 8411410.646 8385810.019 8359313.369 8331889.337 17535.04 18148.7664 18783.97322 19441.41229 20121.86172 20826.12688 21555.04132 22309.46776 23090.29914 23898.45961 24734.90569 25600.62739 26496.64935 27424.03208 28383.8732 29377.30876 30405.51457 31469.70758 32571.14734 33711.1375 34891.02731 36112.21327 37376.14073 37591.26666 320000 320000 320000 320000 8303505.464 3.50% 320000 320000 320000 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 320000 320000 320000 320000 320000 320000 8274128.155 8243722.641 8212252.933 8179681.786 8145970.648 8111079.621 8074967.408 8037591.2671 8000000 Debit C. Journal Entry Date Account Tittle 1/1/21 Cash Premium on Bonds Payable Bonds Payable Credit 8641856 641856 8000000 6/30/21 Interest Expenses Premium on Bonds Payable Cash 302465 17535 320000 12/31/21 Interest Expenses Premium on Bonds Payable Cash 301851 18149 320000