Build an Excel spreadsheet for a $1,000,000, 6% 5-year bond with interest paymen

Question

Build an Excel spreadsheet for a $1,000,000, 6% 5-year bond with interest payments every 6 months. Market interest rate is 5%. Include the following items:

Inputs:
Bond issue amount
Stated Interest Rate
Maturity in Years
Number of payments/year
Market interest rate

Calculations section 1:

Fair value with separate calculations for interest and principal
Discount or premium

Record the journal entry required when the bonds are issued.

Calculations Section 2:

Amortization schedule for each interest payment. Use the general ledger accounts of cash, discount or premium, bonds payable and interest expense.

Set up the spreadsheet consistent with journal entries necessary to record each interest payment and related amortization. Also show the remaining principal and discount/premium at each interest payment. NOTE: At the end of the loan term, the discount/premium account should be zero.

Explanation / Answer

1)

Bond Issue Amount

= Semi-annual Interest * PVIFA(2.5%, 10) + $100000 * PVIF (2.5%, 10)

= $30000 * 8.752 + $100000 * 0.781

= $1043760

Bond Premium = $1043760 - $1000000 = $43760

2)

Date Account Titles and Explanations Debit ($) Credit ($) Jan-01 Cash 1043760 Bonds payable 1000000 Premium on bonds payable 43760 (bond issued at premium)

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