Homework Answers
| Rate | Semi annual Bond Yield=Market interest=(11/2)% | 5.50% | ||||||||
| Nper | Number of Semi annual period (20*2) | 40 | ||||||||
| Pmt | Semi annual Coupon Payment (420000*10%)/2 | $21,000 | ||||||||
| FV | Payment at maturity | $420,000 | ||||||||
| PV | Bond Issue Price | $386,303 | (Using PV function of excel with Rate=5.5%, Nper=40, Pmt=-21000, Fv=-420000) | |||||||
| FV-PV | Bond Discount (420000-386303) | $33,697 | ||||||||
| PRICE OF BOND ON JANUARY 1, 2020 | $386,303 | |||||||||
| AMORTIZATION SCHEDULE | ||||||||||
| (10/2)=5% *420000 | Yield rate(11/2)=5.5% *Previous Book value | |||||||||
| A | B | C | D=B-C | E | F | G=F-E | ||||
| Date | Coupon payment | Interest Expense | Amortization of Discount | Debit Balance in Bond Discount Account | Credit Balance in Bond Payable Account | Book value of the Bond | ||||
| Jan1,2018 | $33,697 | $420,000 | $386,303 | |||||||
| 1 | June30,2018 | $21,000 | $21,247 | $246.67 | $33,450 | $420,000 | $386,550 | |||
| 2 | Dec31,2018 | $21,000 | $21,260 | $260.24 | $33,190 | $420,000 | $386,810 | |||
| 1 | March,31 | |||||||||
| Interest Expense=21247/2= | $10,623 | |||||||||
| Coupon Payable=21000/2 | $10,500 | |||||||||
| Amortization of discount =10623-10500 | $123 | |||||||||
| Debit Balance in Discount account=33697-123 | $33,574 | |||||||||
| Book Value of Bond =420000-33574 | $386,426 | |||||||||
| Fair Value of Bond | $410,000 | |||||||||
| Comprehensive income to be decreased by | $23,574 | (410000-386426) | ||||||||
| 2 | June , 30 | |||||||||
| Book Value of Bond | $386,550 | |||||||||
| Fair Value of Bond | $395,000 | |||||||||
| Comprehensive income to be decreased by | $8,450 | (395000-386550) | ||||||||
| 3 | September,30 | |||||||||
| Amortization of discount =260/2 | $130 | |||||||||
| Debit Balance in Discount account=33450-130 | $33,320 | |||||||||
| Book Value of Bond =420000-33320 | $386,680 | |||||||||
| Fair Value of Bond | $389,000 | |||||||||
| Comprehensive income to be decreased by | $2,320 | (389000-386680) | ||||||||
| 4 | December,31 | |||||||||
| Book Value of Bond | $386,810 | |||||||||
| Fair Value of Bond | $396,000 | |||||||||
| Comprehensive income to be decreased by | $9,190 | (396000-386810) | ||||||||
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