Question

Schedule of Bond Premium Amortization Effective Interest Method-Semi-Annual Interest Payments - 5-Year, 8% Bonds Sold to Yield 6% Cash Paid Interest Premium Carrying Amount Expense Amortized of Bonds Date $ 3,256b 3,234 $ 108,530 107,7860 107,020 106,231 105,418 104,580 3,211 3,187 3,162 1/1/20 7/1/20 $ 4,000a 1/1/21 4,000 7/1/21 4,000 1/1/22 4,000 7/1/22 4,000 1/1/23 4,000 7/1/23 4,000 1/1/24 4,000 7/1/24 4,000 1/1/25 4,000 $40,000 $ 7449 766 789 813 838 863 888 3,137 3,112 3,085 3,057 103,717 102,829 101,914 915 943 100,971 100,000 3,029 971 $31,470 $8,530

Hello! Can someone tell me how to recreate this tableau in my TEXAS BA 2 PLUS calculator step by step to find the interest expense amount? This is a bond premium example. Thank you

Answer 1

Step 1 Annual yield of 6% has to be converted to semi annual= 6%/2 = 3% Step 2 Cash Interest paid is $100,000 * 8% /2 = $4,000 ( divided by 2 since interest is semi-annual) Step 3 Interest expense for the period is 3% of Bond carrying value Step 4 Premium amortization = Total cash interest - interest expense Step 5 Carrying amount of bond = Carrying value - Premium amortised Amortization table Effective Interest Method Interest Premium expense Amortization Date Cash paid Interest expense working Interest expense is 3% of $108,530 Interest expense is 3% of $107,786 Interest expense is 3% of $107,019 and so on 1/1/20 7/1/20 1/1/21 7/1/21 1/1/22 7/1/22 1/1/23 7/1/23 1/1/24 7/1/24 1/1/25 Carrying value $108,530- $744 $107,786- $766 $107,019- $789 and so on $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $40,000 Carrying Amount of Bond $108,530 $107,786 $107,019 $106,230 $105,417 $104,579 $103,717 $102,828 $101,913 $100,971 $100,000 $3,256 $3,234 $3,211 $3,187 $3,163 $3,137 $3,112 $3,085 $3,057 $3,029 $31,470 $744 $766 $789 $813 $837 $863 $888 $915 $943 $971 $8,530