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Chapter 15 Practice

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Daniela Velez

This document discusses bonds, including discount bonds, premium bonds, and amortizing discounts and premiums. It provides an example of calculating the proceeds from issuing a $1,000,000 face value bond at a discount of 2% of par value. It also shows an example of a bond issued at a premium, with a table demonstrating the amortization of the premium over the life of the bond through reductions to the interest expense.

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Chapter 15 Practice

Uploaded by

Daniela Velez
9 views7 pages
This document discusses bonds, including discount bonds, premium bonds, and amortizing discounts and premiums. It provides an example of calculating the proceeds from issuing a $1,000,000 face value bond at a discount of 2% of par value. It also shows an example of a bond issued at a premium, with a table demonstrating the amortization of the premium over the life of the bond through reductions to the interest expense.

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This document discusses bonds, including discount bonds, premium bonds, and amortizing discounts and premiums. It provides an example of calculating the proceeds from issuing a $1,000,000 face value bond at a discount of 2% of par value. It also shows an example of a bond issued at a premium, with a table demonstrating the amortization of the premium over the life of the bond through reductions to the interest expense.

Copyright:

© All Rights Reserved
Download as XLSX, PDF, TXT or read online from Scribd
Download as xlsx, pdf, or txt
9 views7 pages

Chapter 15 Practice

Uploaded by

Daniela Velez
This document discusses bonds, including discount bonds, premium bonds, and amortizing discounts and premiums. It provides an example of calculating the proceeds from issuing a $1,000,000 face value bond at a discount of 2% of par value. It also shows an example of a bond issued at a premium, with a table demonstrating the amortization of the premium over the life of the bond through reductions to the interest expense.

Copyright:

© All Rights Reserved
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Chapter 15

Market price = present value

Rate or cupon
Bond* rate * times of the rate

Bonds
Discount Market price Premium

Price
below
market
value Price above market value

Table

Bond Coupon Eff maturity Price Yield

interest payments
Interest expense debit Interest expense
Cash cedit Interest payable

Maturuty of the payment


Bonds payable debit
Cash credit

Issue date and sale date

pmt = face value*interest rate full* 6/12


Normally bonds are semianually
Face valueRate/2 year*2 FV PMT
1000000 3.14% 20 -$ 980,163.82 30000

98% of face value = 980000/1000000*100


Rate at market price

Reord Debit Credit


Cash 980000
Discount a 20000
Bonds Payable 1000000

Payable recort

Long term liabilities


Bonds payble 1000000
Less discount on bon 20000

Face valueRate/2 year*2 FV PMT


1000000 0.0275 20 -$ 1,038,068.13 30000

Long term liabilities


Bonds payble 1000000
Plus premium on bon 381000
$ 1,038,068.13
30000
Amortization

Take the discount or the premium and

(discount or premium*periods)

Premium 38100/20

Interest expense 30000


Cash 30000

Premium bonds payab 1905


Interest expense 1905

Bond Info semianual


Maturity value 1000000 Years 5
interest rate 5% 0.025 Periods 10
Market inerest rate 6% 0.03 Premiun $ 957,348.99
Pmt 5% 25000 3%
Pmt 6% 30000
Discount $ 42,651.01

A B C D E F

Unamortaiz
Semi- ed discount
anual interest discount (proceeding Bond carring
interest payment Interest amortization E -current amount (face
period 2.5% expense 3% (b-c) d) value -e)

Issue date $ 42,651.01


1 25000 $ 28,720.47 $ 3,720.47 $ 38,930.54 $ 961,069.46
2 25000 $ 28,832.08 $ 3,832.08 $ 35,098.46 $ 964,901.54
3 25000 $ 28,947.05 $ 3,947.05 $ 31,151.41 $ 968,848.59
4 25000 $ 29,065.46 $ 4,065.46 $ 27,085.96 $ 972,914.04
5 25000 $ 29,187.42 $ 4,187.42 $ 22,898.54 $ 977,101.46
6 25000 $ 29,313.04 $ 4,313.04 $ 18,585.49 $ 981,414.51
7 25000 $ 29,442.44 $ 4,442.44 $ 14,143.06 $ 985,856.94
8 25000 $ 29,575.71 $ 4,575.71 $ 9,567.35 $ 990,432.65
9 25000 $ 29,712.98 $ 4,712.98 $ 4,854.37 $ 995,145.63
10 25000 $ 29,854.37 $ 4,854.37 $ 0.00 $ 1,000,000.00
11
e*interest rate full* 6/12

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