On January 1, 2017, Bobcat Company sold 12% bonds having a face value of $300,000 to...
On January 1, 2017, Bobcat Company sold 12% bonds having a face value of $300,000 to yield 10% market rate. The bonds are dated January 1, 2017 and mature January 1, 2022 (5 year term), with interest payable quarterly (April 1, July 1, October 1, and January 1) each year. Instructions Prepare complete bond amortization schedules for Bobcat using the Excel templates on the following tabs. Tab 1: Assume Bobcat allocates interest and unamortized discount or premium on the EFFECTIVE-INTEREST (EI) basis. Tab 2: Assume Bobcat allocates interest and unamortized discount or premium on the STRAIGHT-LINE (SL) basis.
Effective Interest Basis
| Date | Payment Number |
Cash Interest Expense |
Interest Expense | Premium Amortization Amount |
Carrying Amount of Bonds |
|---|---|---|---|---|---|
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Straight-Line
| Date |
Payment Number |
Cash Interest Expense |
Interest Expense |
Premium Amortization Amount |
Carrying Amount of Bonds |
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Please explain excel formulas used or how you solved.
Homework Answers
| Ans 1. | |
| Bobcat Company | |
| Bond Face value | $ 300,000 |
| Coupon Rate = | 12% |
| Quarterly Interest payment = | $ 9,000 |
| Market Yield =Effective Interest | 10% |
| Quarterly Market yield =Effective Interest= | 2.50% |
| Maturity period in years | 5 |
| Total Quarterly period for coupons payment | 20 |
| PV Annuity Factor for 20 Qtrs @2.5% =[1-(1.025)^-20]/2.5%= | 15.58916 |
| PV factor after 20 Qtrs @2.5% =1/1.025^20= | 0.61027 |
| Current Bond Price calculation | |||
| Cash Flow | Amt | PVIF/PV Factor | PV of Cash flows |
| Quarterly Interest payments | 9,000 | 15.58916 | $ 140,302.44 |
| Marturity Value | 300,000 | 0.61027 | $ 183,081.00 |
| Total PV of Cash flows=Bond Current Price | $ 323,383.44 |
| So Bond Sales Price | $ 323,383.44 |
| Bond Par Value = | $ 300,000.00 |
| Premium | $ 23,383.44 |
| Premium Amortization by Effective Interest rate | a | b | c | d=b-c | e= prev prem bal-d | =300,000+e |
| Payment period | Opening Bond Payable Amount | Cash Interest Exp | Interest Exp @2.5% | Premium Amortization | Balance Premium | Carrying Bond Amt |
| start: 01/01/2017 | 323,383 | $ 9,000 | 8,084.59 | $ 915.41 | $ 22,468.03 | $ 322,468.03 |
| 2 | 322,468 | $ 9,000 | 8,061.70 | $ 938.30 | $ 21,529.73 | $ 321,529.73 |
| 3 | 321,530 | $ 9,000 | 8,038.24 | $ 961.76 | $ 20,567.97 | $ 320,567.97 |
| 4 | 320,568 | $ 9,000 | 8,014.20 | $ 985.80 | $ 19,582.17 | $ 319,582.17 |
| 5 | 319,582 | $ 9,000 | 7,989.55 | $ 1,010.45 | $ 18,571.72 | $ 318,571.72 |
| 6 | 318,572 | $ 9,000 | 7,964.29 | $ 1,035.71 | $ 17,536.02 | $ 317,536.02 |
| 7 | 317,536 | $ 9,000 | 7,938.40 | $ 1,061.60 | $ 16,474.42 | $ 316,474.42 |
| 8 | 316,474 | $ 9,000 | 7,911.86 | $ 1,088.14 | $ 15,386.28 | $ 315,386.28 |
| 9 | 315,386 | $ 9,000 | 7,884.66 | $ 1,115.34 | $ 14,270.93 | $ 314,270.93 |
| 10 | 314,271 | $ 9,000 | 7,856.77 | $ 1,143.23 | $ 13,127.71 | $ 313,127.71 |
| 11 | 313,128 | $ 9,000 | 7,828.19 | $ 1,171.81 | $ 11,955.90 | $ 311,955.90 |
| 12 | 311,956 | $ 9,000 | 7,798.90 | $ 1,201.10 | $ 10,754.80 | $ 310,754.80 |
| 13 | 310,755 | $ 9,000 | 7,768.87 | $ 1,231.13 | $ 9,523.67 | $ 309,523.67 |
| 14 | 309,524 | $ 9,000 | 7,738.09 | $ 1,261.91 | $ 8,261.76 | $ 308,261.76 |
| 15 | 308,262 | $ 9,000 | 7,706.54 | $ 1,293.46 | $ 6,968.30 | $ 306,968.30 |
| 16 | 306,968 | $ 9,000 | 7,674.21 | $ 1,325.79 | $ 5,642.51 | $ 305,642.51 |
| 17 | 305,643 | $ 9,000 | 7,641.06 | $ 1,358.94 | $ 4,283.57 | $ 304,283.57 |
| 18 | 304,284 | $ 9,000 | 7,607.09 | $ 1,392.91 | $ 2,890.66 | $ 302,890.66 |
| 19 | 302,891 | $ 9,000 | 7,572.27 | $ 1,427.73 | $ 1,462.93 | $ 301,462.93 |
| 20 | 301,463 | $ 9,000 | 7,536.57 | $ 1,463.43 | $ 300,000.00 |
| Ans 2. | |
| So Bond Sales Price | $ 323,383.44 |
| Bond Par Value = | $ 300,000.00 |
| Premium | $ 23,383.44 |
| Quarterly Premium Amortization over 20 Qtrs | $ 1,169.17 |
| Premium Amortization by SL Amortization | a | b | c=fixed amt | d=b-c | e= prev bal prem-c | =$300,000+e |
| Payment period | Opening Bond Payable Amount | Cash Interest Exp | Premium Amortization | Interst Expense | Balance Premium | Carrying Bond Amt |
| start: 01/01/2017 | 300,000 | $ 9,000 | $ 1,169.17 | $ 7,830.83 | $ 22,214.27 | $ 322,214.27 |
| 2 | 322,214 | $ 9,000 | $ 1,169.17 | $ 7,830.83 | $ 21,045.10 |
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