HWK #9 SS23 Solution
xlsx
School
Michigan State University *
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Course
311
Subject
Accounting
Date
Feb 20, 2024
Type
xlsx
Pages
6
Uploaded by nathangardner35
Part A (1) Determine the proceeds of the bond sale on 1/1/2023
Face value
3,000,000 Bond rate
10%
Effective interest 8%
Coupon payment
300,000 Payment period
6
PV
$3,277,372.78 (2) Calculate present value of the bond by using present value tables
Step1: Layout of the payment
Time
12/31/2023
12/31/2024
12/31/2025
Coupon payment
300,000 300,000 300,000 Principal payment
Step2 : Find the discount factor by using the table and perform calculation PV of principal
1,890,600.00 i
PV of coupon
1,386,870.00 i
Sum of PV
3,277,470.00 Difference due to rounding
97.22 (3) Did the bond sell at the premium or discount?
The bond is sold at premium. We can tell this by (1) comparing the face value of the bond to th
(4) Produce amortization schedule
Year
Interest Expense
Coupon payment
Amortized premium
1/1/2023
12/31/2023
$262,189.82 300,000 $37,810.18 12/31/2024
$259,165.01 300,000 $40,834.99 12/31/2025
$255,898.21 300,000 $44,101.79 12/31/2026
$252,370.07 300,000 $47,629.93 12/31/2027
$248,559.67 300,000 $51,440.33 12/31/2028
$244,444.44 300,000 $55,555.56 Total
$1,522,627.22 1,800,000 $277,372.78 $3,277,372.78 $3,000,000.00
(5) Journal entries
(1) Initial Sale Cash
3,277,372.78 Premium on B/P
277,372.78 Bond payable
3,000,000.00 (2) First interest payment
Interest Expense
262,189.82 Premium on B/P
37,810.18 Cash 300,000.00 (3) Payment at maturity
Interest Expense
$244,444.44 Premium on B/P
$55,555.56 Cash 300,000.00 $300,000.00 Bond payable 3,000,000.00 Cash $3,000,000.00 (6) T Account
Date
Bond 1/1/2022
3,000,000.00 Bond Premium
277,372.78
37,810.18 $40,834.99 198,727.61 Net bond Payable as of 12/31/2024
$3,198,727.61
12/31/2026
12/31/2027
12/31/2028
300,000 300,000 300,000 3,000,000 0.6302
Using present value table with r=8% and n=6
4.6229
Using annuity table with r=8% and n=6
he present value or (2) comparing bond rate to effective rate Book value of bond
$3,277,372.78 <----This is the PV of the bond at issuance
$3,239,562.60 $3,198,727.61 $3,154,625.82 $3,106,995.88 $3,055,555.56 $3,000,000.00 Amortization (Credit)
<----Double checking the total amortization amount
Tie out
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Part B
(1) Determine the proceeds of the bond sale on 1/1/2022
Here we have to be a bit careful as the payment is semi-annual, so our n will be 2*5=10 periods, and ou
Face value
2,000,000 Bond rate
4.0%
Effective interest 5%
Coupon payment
80,000 Payment period
10
PV
$1,845,565.30 (2) Did the bond sell at the premium or discount?
The bond is sold at discount. We can tell this by (1) comparing the face value of the bond to the present
(3) Produce amortization schedule
Year
Interest Expense
Coupon payment
Amortized discount
Book value of bond
1/1/2022
$1,845,565.30 6/30/2022
$92,278.27 80,000.0 $12,278.27 $1,857,843.57 12/31/2022
$92,892.18 80,000.0 $12,892.18 $1,870,735.74 6/30/2023
$93,536.79 80,000.0 $13,536.79 $1,884,272.53 12/31/2023
$94,213.63 80,000.0 $14,213.63 $1,898,486.16 6/30/2024
$94,924.31 80,000.0 $14,924.31 $1,913,410.47 12/31/2024
$95,670.52 80,000.0 $15,670.52 $1,929,080.99 6/30/2025
$96,454.05 80,000.0 $16,454.05 $1,945,535.04 12/31/2025
$97,276.75 80,000.0 $17,276.75 $1,962,811.79 6/30/2026
$98,140.59 80,000.0 $18,140.59 $1,980,952.38 12/31/2026
$99,047.62 80,000.0 $19,047.62 $2,000,000.00 Total
$954,434.70 $800,000.00 $154,434.70 $154,434.70 Amortization (Credit)
$0.00 Tie out
(4) Journal Entries
(1) Initial Sale Cash
1,845,565.30 Discount on B/P
154,434.70 Bond payable
2,000,000.00 (2) First interest payment
Interest Expense
92,278.27 Discount on B/P
12,278.27 Cash 80,000.00 (3) Payment at maturity
Interest Expense
$99,047.62 Discount on B/P
$19,047.62 Cash 80,000.00 Bond payable $2,000,000.00 Cash $2,000,000.00 (5) T Account
Date
Bond 1/1/2022
2,000,000.00 $2,000,000.00 Date
Bond Discount
154,434.70 $12,278.27 $12,892.18 $13,536.79 $14,213.63 $14,924.31 $15,670.52 $16,454.05 $17,276.75 37,188.21 Net B/P
$1,962,811.79
ur interest rate per period will be 8%/2=4%, and our coupon rate will be 10%/2=5%
t value or (2) comparing bond rate to effective rate <----This is the PV of the bond at issuance
<----Double checking the total amortization amount
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