PART B
Bill Corporation issued six-year, 7% bonds with a total face value of $1,250,000 on January 1, 2019. Interest is paid semi-annually on June 30 and December 31. The market rate of interest on this date was 10.0%. Bill uses the effective interest rate method.
Required:
1.
Determine the proceeds of the bond sale on 1/1/19. Explain your method of
calculation.
2.
Using the present value of a dollar table (found in Appendix E of your text), what
factor would you use to calculate the present value of the face value of the bond?
3.
Using the present value of an ordinary annuity table (found in Appendix E of your
text), what factor would you use to calculate the present value of the coupon
payments? For your own benefit, you may want to demonstrate that the price of
the bonds is the same using the factors from the table that you got in Excel.
4.
Did this bond sell at a premium or discount?
5.
Using Excel, prepare a six-year bond amortization schedule for these bonds.
There are examples in your notes and posted on D2L. Use formulas and reference
cells in Excel to show how you calculate your numbers.
6.
Prepare journal entries to record
(1)
the sale of the bonds on January 1, 2019,
(2)
the interest payment for the period ended June 30, 2019 and,
(3)
the final interest
and face value payment at maturity on December 31, 2024.
7.
Show how the balance sheet would report the bond liability and related premium/
discount on June 30, 202
Part 1,2,3,4 | |||||
Table values are based on: | |||||
n= | 12 | ||||
i= | 5.0% | ||||
Cash Flow | Table Value | Amount | Present Value | ||
Interest | 8.86325 | $43,750 | $3,87,767 | ||
Principal | 0.55684 | $12,50,000 | $6,96,050 | ||
Price of Bond | $10,83,817 | ||||
Discount on Bonds =$1,250,000 - $1,083,817 =$166,183 | |||||
Part 5 | |||||
Amortization table | |||||
Date | Interest Payment($1,250,000*3.5%) | Interest expenses(Bond carrying amount*5%) | Discount amorrtization | Unamortized discount | Bond carrying amount |
Col I | Col II | Col III | Col IV(Col III - Col II) | Col V(Col VI - Col IV) | Col VI |
01-Jan-19 | 1,66,183 | 10,83,817 | |||
30-Jun-19 | 43,750 | 54,191 | 10,441 | 1,55,742 | 10,94,258 |
30-Dec-19 | 43,750 | 54,713 | 10,963 | 1,44,779 | 11,05,221 |
30-Jun-20 | 43,750 | 55,261 | 11,511 | 1,33,268 | 11,16,732 |
30-Dec-20 | 43,750 | 55,837 | 12,087 | 1,21,182 | 11,28,818 |
30-Jun-21 | 43,750 | 56,441 | 12,691 | 1,08,491 | 11,41,509 |
30-Dec-21 | 43,750 | 57,075 | 13,325 | 95,165 | 11,54,835 |
30-Jun-22 | 43,750 | 57,742 | 13,992 | 81,174 | 11,68,826 |
30-Dec-22 | 43,750 | 58,441 | 14,691 | 66,482 | 11,83,518 |
30-Jun-23 | 43,750 | 59,176 | 15,426 | 51,056 | 11,98,944 |
30-Dec-23 | 43,750 | 59,947 | 16,197 | 34,859 | 12,15,141 |
30-Jun-24 | 43,750 | 60,757 | 17,007 | 17,852 | 12,32,148 |
30-Dec-24 | 43,750 | 61,602 | 17,852 | 0 | 12,50,000 |
Part 6 | |||||
Date | Accounts and explanation | Debit(in $) | Credit(in $) | ||
01-Jan-19 | Cash | 10,83,817 | |||
Discount on Bonds Payable | 1,66,183 | ||||
Bonds Payable | 12,50,000 | ||||
30-Jun-19 | Interest expenses | 54,191 | |||
Cash | 43,750 | ||||
Discount on Bonds Payable | 10,441 | ||||
30-Dec-24 | Interest expenses | 61,602 | |||
Cash | 43,750 | ||||
Discount on Bonds Payable | 17,852 | ||||
30-Dec-24 | Bonds Payable | 12,50,000 | |||
Cash | 12,50,000 | ||||
Part 7 | |||||
Balance sheet extract as on June 30,2020 | |||||
Long term liabilities | $12,50,000 | ||||
Less: | Unamortized Discount | $1,33,268 | $11,16,732 | ||
PART B Bill Corporation issued six-year, 7% bonds with a total face value of $1,250,000 on...
PART A Sparty Corporation issued five-year, 8% bonds with a total face value of $500,000 on January 1, 2019. Interest is paid annually on December 31. The market rate of interest on this date was 6%. Sparty uses the effective interest rate method. Required: 1. Using Excel, determine the proceeds of the bond sale on 1/1/19. 2. Using the present value of a dollar table (found in Appendix E of your text), what factor would you use to calculate the...
Use financial formulas in Excel to show work for Requirement #1 and #5 of each part Bill Corporation issued six-year, 7% bonds with a total face value of $1,250,000 on January 1, 2019. Interest is paid semi-annually on June 30 and December 31. The market rate of interest on this date was 10.0%. Bill uses the effective interest rate method. Required: Determine the proceeds of the bond sale on 1/1/19. Explain your method of calculation. Using the present value of...
You should turn in your answers in ONE Excel document. Use financial formulas in Excel to show work for Requirement #1 and #5 of each part. An assignment submitted that doesn’t demonstrate your formulas within Excel will receive an unsatisfactory grade. PART A Sparty Corporation issued five-year, 8% bonds with a total face value of $500,000 on January 1, 2019. Interest is paid annually on December 31. The market rate of interest on this date was 6%. Sparty uses the...
On July 1, 2019, Sugarland Company issued $2,000,000 face value of 10%, 10-year bonds at $1,770,602, a price which implies an effective interest rate of 12%. Sugarland uses the effective-interest method to amortize bond premiums and discounts. These bonds pay interest semiannually on June 30 and December 31. Required: Compute the answers to the following questions: (a.) How much interest will Sugarland pay (in cash) every six months? (b.)What is the dollar amount of the premium or discount on these...
please show excel calculations! You should turn in your answers in ONE Excel document. Use financial formulas in Excel to show work for Requirement #1 and #5 of each part. An assignment submitted that doesn't demonstrate your formulas within Excel will receive an unsatisfactory grade. PART B Bill Corporation issued five-year, 6% bonds with a total face value of $1,000,000 on January 1, 2019. Interest is paid semi-annually on June 30 and December 31. The market rate of interest on...
On January 1, 2018, Professors Credit Union (PCU) issued 7%, 20-year bonds payable with face value of $100,000. The bonds pay interest on June 30 and December 31. Read the requirements. Requirement 1. If the market interest rate is 5% when PCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain. The 7% bonds issued when the market interest rate is 5% will be priced at 7. They are in...
1. Datos: On January 1, 2019, Firm X issued 7% bonds, face value $5,000,000 due at the end of 5 years with interest paid annually. Part 1: Assume yield rate is 8% Yield Rate 8% Present value of 1 at 8% .68058 Present value of annuity (5 years 8%) 3.99271 1. How much was the bond sold? 2. Amount of Premium or Discount? 3. Present the calculation of how I arrive at these quantities of question 1 and 2: 4....
On July 1, 2020 Splish Limited issued bonds with a face value of $1,090,000 due in 20 years, paying interest at a face rate of 8% on January 1 and July 1 each year. The bonds were issued to yield 10%. The company’s year-end was September 30. The company used the effective interest method of amortization. Using 1. factor Tables 2. a financial calculator, or 3. Excel function PV, calculate the premium or discount on the bonds. (Round factor values...
Using Excel, determine the proceeds of the bond sale on 1/1/19. PART A Sparty Corporation issued five-year, 8% bonds with a total face value of $500,000 on January 1, 2019. Interest is paid annually on December 31. The market rate of interest on this date was 6%. Sparty uses the effective interest rate method. Required: 1. Using Excel, determine the proceeds of the bond sale on 1/1/19. 2. Using the present value of a dollar table (found in Appendix E...
On June 30, 2021, Singleton Computers issued 7% stated rate bonds with a face amount of $200 million. The bonds mature on June 30, 2036 (15 years). The market rate of interest for similar bond issues was 4% (2.0% semiannual rate). Interest is paid semiannually (3.5%) on June 30 and December 31, beginning on December 31, 2021. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from...