Question

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 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 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 five-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 December 31, 2019 and, (3) the final interest and face value payment at maturity on December 31, 2023.

7. Show how the balance sheet would report the bond liability and related premium/discount on December 31, 2020.

Answer 1

X fic i D E F G H face value of bonds annual interest payment market rate of interest life of bonds (years) ceeds of the bond sale on 1/1/19 $ 500,000 $ 40,000 6% $ 542,123.64 factor to be used to calculate the present value of the face value of the bond 0.74726 factor to be used to calculate the present value of the coupon payments 4.21236 41 did this bond sell at a premium or discount Premium five-year bond amortization schedule interest interest amortization carrying value year expense payment of premium of bonds 01 January 2019 $ 542,123.64 31 December 2019 $ 32,527.42 $ 40,000.00 $ 7,472.58 $ 534,651.06 31 December 2020 $ 32,079.06 $ 40,000.00 $ 7,920.94 $ 526,730.12 31 December 2021 $ 31,603.81 $ 40,000.00 $ 8,396.19 $ 518,333.93 31 December 2022 $ 31,100.04 $ 40,000.00 $ 8,899.96 $ 509,433.96 31 December 2023 $ 30,566.04 $ 40,000.00 $ 9,433.96 $ 500,000.00

no date account titles and explanation debit credit 1 $ 542,124 01 January 2019 cash bonds payable premium on bonds payable (to record issue of bonds payable) $ 500,000 $ 42,124 2 $32,527 $ 7,473 31 December 2019 interest expense premium on bonds payable cash (to record interest expense) $ 40,000 3 $ 30,566 $ 9,434 31 December 2023 interest expense premium on bonds payable cash (to record interest expense) $ 40,000 3 $ 500,000 31 December 2023 bonds payable cash (to record repayment of bonds payable) $ 500,000

Sparty Corporation balance sheet (partial) as on December 31, 2020 long term liabilities bonds payable $ 500,000 add: premium on bonds payable $ 26,730 $ 526,730

for formulas and calculations, refer to the image below -

fx 1 face value of bonds annual interest payment market rate of interest life of bonds (years) proceeds of the bond sale on 1/1/19 500000 =D2*8% 0.06 =PV(D4,D5,-D3,-D2) factor to be used to calculate the present value of the face value of the bond =ROUND(PV(D4,D5,0,-1),5) factor to be used to calculate the present value of the coupon payments =ROUND(PV(D4,D5,-1),5) 4 did this bond sell at a premium or discount =IF(D6>D2,"Premium","Discount") five-year bond amortization schedule year interest expense interest payment amortization of premium carrying value of bonds 43466 43830 44196 44561 44926 45291 =G16*$D$4 =G17*$D$4 =G18*$D$4 =G19*$D$4 =G20*$D$4 =SD$3 =$D$3 =$D$3 =$D$3 =$D$3 =E17-017 =E18-D18 =E19-019 =E20-D20 =E21-D21 =D6 =G16-F17 =G17-F18 =G18-F19 =G19-F20 =G20-F21

In case you have any query, kindly ask in comments.