26A. Learning Objective 2: Isue bonds payable (discount); record interest paymen
ID: 2568858 • Letter: 2
Question
26A. Learning Objective 2: Isue bonds payable (discount); record interest payments and the related bond amortization using the effective-interest method) Hadley Ltd. is authorized to issue 55, 000,000 of 4%, 10-year bonds payable. On December 31, 2014, when the market interest te is 5%, the company issues $4,000,000 of the bonds. Hadley Ltd. amortizes bond discount the effective-interest method. The semiannual interest dates are June 30 and December 31. Requirements 1. Use the PV function in Excel to calculate the issue price of the bonds. 2. Using Exhibit 9-4 as a model, prepare a bond amortization table for the term of the bonds. 3. Record issuance of the bonds payable on December 31, 2014; the first semiannual interest payment on June 30, 2015; and the second payment o n December 31, 2015 E9-27A. (Learning Objective 2: Isue bonds payable (premium); record interest payment and the related bond amortization using the effective-interest method) On June 30, 2014, the market interest rate is 3.5%. First Base Sports Ltd. issues $4,000,000 of 4496, 20-year bonds payable. The bonds pay interest on June 30 and December 31. First Base Sports Ltd. amortizes bond premium by the effective-interest method. Requirements 1. Use the PV function in Excel to calculate the issue price of the bonds. 2. Using Exhibit 9-7 as a model, prepare a bond amortization table for the term of the bonds. 3. Record the issuance of bonds payable on June 30, 2014; the payment of interest on Decem- ber 31,2014; and the payment of interest on June 30, 2015.Explanation / Answer
1-
value of bond
PVAF at 2% for 20 semiannual period
1-(1+r)^-n / r
1-(1.025)^-20 /.02
15.58916
PVF at 2% for 20 th semiannual period
1/(1+r)^n
1/(1.025)^20
0.610271
value of bond
Interest*PVAF + face value*PVF
100000*15.58916 + 5000000*.610271
4610271
2-
Amortization
Semiannual period
cash paid = bond payable*2%
interest expense = carrying value of bond*2.5%
discount amortized = interest expense-cash paid
carrying value in discount on bond payable = carrying value of bond-discount amortized
bonds payable
carrying value of bond payable = bond payable- carrying value of discount to be amortized
0
389729
5000000
4610271
1
100000
115256.8
15256.78
374472.2
5000000
4625528
2
100000
115638.2
15638.19
358834
5000000
4641166
3
100000
116029.1
16029.15
342804.9
5000000
4657195
4
100000
116429.9
16429.88
326375
5000000
4673625
5
100000
116840.6
16840.62
309534.4
5000000
4690466
6
100000
117261.6
17261.64
292272.7
5000000
4707727
7
100000
117693.2
17693.18
274579.6
5000000
4725420
8
100000
118135.5
18135.51
256444
5000000
4743556
9
100000
118588.9
18588.9
237855.1
5000000
4762145
10
100000
119053.6
19053.62
218801.5
5000000
4781198
11
100000
119530
19529.96
199271.6
5000000
4800728
12
100000
120018.2
20018.21
179253.4
5000000
4820747
13
100000
120518.7
20518.67
158734.7
5000000
4841265
14
100000
121031.6
21031.63
137703.1
5000000
4862297
15
100000
121557.4
21557.42
116145.6
5000000
4883854
16
100000
122096.4
22096.36
94049.27
5000000
4905951
17
100000
122648.8
22648.77
71400.5
5000000
4928599
18
100000
123215
23214.99
48185.51
5000000
4951814
19
100000
123795.4
23795.36
24390.15
5000000
4975610
20
100000
124390.2
24390.25
0
5000000
5000000
3-
date
explanation
debit
credit
Dec 31 2014
cash
4610271
discount on bond payable
389729
bonds payable
5000000
june 30 2015
interest expense
115256.8
cash
100000
discount on bond payable
15256.78
dec 31 2015
interest expense
115638.2
cash
100000
discount on bond payable
15638.19
1-
value of bond
PVAF at 1.75% for 40 semiannual period
1-(1+r)^-n / r
1-(1.0175)^-40 /.0175
28.59423
PVF at 1.75% for 40 th semiannual period
1/(1+r)^n
1/(1.0175)^40
0.499601
value of bond
Interest*PVAF + face value*PVF
90000*28.59423 + 4000000*..499601
4571885
2-
Amortization table
Semiannual period
cash paid = bond payable*2.35%
interest expense = carrying value of bond*1.75%
premium amortized amortized = cash paid-interest expense
carrying value in premium on bond payable = previous balance-premium amortized
bonds payable
carrying value of bond payable = bond payable+ carrying value of bond to be amortized
0
571884.7
4000000
4571885
1
90000
80007.98
9992.018
561892.7
4000000
4561893
2
90000
79833.12
10166.88
551725.8
4000000
4551726
3
90000
79655.2
10344.8
541381
4000000
4541381
4
90000
79474.17
10525.83
530855.2
4000000
4530855
5
90000
79289.97
10710.03
520145.1
4000000
4520145
6
90000
79102.54
10897.46
509247.7
4000000
4509248
7
90000
78911.83
11088.17
498159.5
4000000
4498160
8
90000
78717.79
11282.21
486877.3
4000000
4486877
9
90000
78520.35
11479.65
475397.7
4000000
4475398
10
90000
78319.46
11680.54
463717.1
4000000
4463717
11
90000
78115.05
11884.95
451832.2
4000000
4451832
12
90000
77907.06
12092.94
439739.2
4000000
4439739
13
90000
77695.44
12304.56
427434.7
4000000
4427435
14
90000
77480.11
12519.89
414914.8
4000000
4414915
15
90000
77261.01
12738.99
402175.8
4000000
4402176
16
90000
77038.08
12961.92
389213.9
4000000
4389214
17
90000
76811.24
13188.76
376025.1
4000000
4376025
18
90000
76580.44
13419.56
362605.5
4000000
4362606
19
90000
76345.6
13654.4
348951.1
4000000
4348951
20
90000
76106.64
13893.36
335057.8
4000000
4335058
21
90000
75863.51
14136.49
320921.3
4000000
4320921
22
90000
75616.12
14383.88
306537.4
4000000
4306537
23
90000
75364.4
14635.6
291901.8
4000000
4291902
24
90000
75108.28
14891.72
277010.1
4000000
4277010
25
90000
74847.68
15152.32
261857.8
4000000
4261858
26
90000
74582.51
15417.49
246440.3
4000000
4246440
27
90000
74312.71
15687.29
230753
4000000
4230753
28
90000
74038.18
15961.82
214791.2
4000000
4214791
29
90000
73758.85
16241.15
198550
4000000
4198550
30
90000
73474.63
16525.37
182024.6
4000000
4182025
31
90000
73185.43
16814.57
165210.1
4000000
4165210
32
90000
72891.18
17108.82
148101.2
4000000
4148101
33
90000
72591.77
17408.23
130693
4000000
4130693
34
90000
72287.13
17712.87
112980.1
4000000
4112980
35
90000
71977.15
18022.85
94957.3
4000000
4094957
36
90000
71661.75
18338.25
76619.05
4000000
4076619
37
90000
71340.83
18659.17
57959.89
4000000
4057960
38
90000
71014.3
18985.7
38974.19
4000000
4038974
39
90000
70682.05
19317.95
19656.23
4000000
4019656
40
90000
70343.98
19656.02
0
4000000
4000000
3-
date
explanation
debit
credit
Dec 31 2014
cash
4571885
premium on bond payable
571884.7
bonds payable
4000000
june 30 2015
interest expense
80007.98
premium on bond payable
9992.018
cash
90000
dec 31 2015
interest expense
79833.12
premium on bond payable
10166.88
90000
cash
90000
1-
value of bond
PVAF at 2% for 20 semiannual period
1-(1+r)^-n / r
1-(1.025)^-20 /.02
15.58916
PVF at 2% for 20 th semiannual period
1/(1+r)^n
1/(1.025)^20
0.610271
value of bond
Interest*PVAF + face value*PVF
100000*15.58916 + 5000000*.610271
4610271
2-
Amortization
Semiannual period
cash paid = bond payable*2%
interest expense = carrying value of bond*2.5%
discount amortized = interest expense-cash paid
carrying value in discount on bond payable = carrying value of bond-discount amortized
bonds payable
carrying value of bond payable = bond payable- carrying value of discount to be amortized
0
389729
5000000
4610271
1
100000
115256.8
15256.78
374472.2
5000000
4625528
2
100000
115638.2
15638.19
358834
5000000
4641166
3
100000
116029.1
16029.15
342804.9
5000000
4657195
4
100000
116429.9
16429.88
326375
5000000
4673625
5
100000
116840.6
16840.62
309534.4
5000000
4690466
6
100000
117261.6
17261.64
292272.7
5000000
4707727
7
100000
117693.2
17693.18
274579.6
5000000
4725420
8
100000
118135.5
18135.51
256444
5000000
4743556
9
100000
118588.9
18588.9
237855.1
5000000
4762145
10
100000
119053.6
19053.62
218801.5
5000000
4781198
11
100000
119530
19529.96
199271.6
5000000
4800728
12
100000
120018.2
20018.21
179253.4
5000000
4820747
13
100000
120518.7
20518.67
158734.7
5000000
4841265
14
100000
121031.6
21031.63
137703.1
5000000
4862297
15
100000
121557.4
21557.42
116145.6
5000000
4883854
16
100000
122096.4
22096.36
94049.27
5000000
4905951
17
100000
122648.8
22648.77
71400.5
5000000
4928599
18
100000
123215
23214.99
48185.51
5000000
4951814
19
100000
123795.4
23795.36
24390.15
5000000
4975610
20
100000
124390.2
24390.25
0
5000000
5000000
3-
date
explanation
debit
credit
Dec 31 2014
cash
4610271
discount on bond payable
389729
bonds payable
5000000
june 30 2015
interest expense
115256.8
cash
100000
discount on bond payable
15256.78
dec 31 2015
interest expense
115638.2
cash
100000
discount on bond payable
15638.19
1-
value of bond
PVAF at 1.75% for 40 semiannual period
1-(1+r)^-n / r
1-(1.0175)^-40 /.0175
28.59423
PVF at 1.75% for 40 th semiannual period
1/(1+r)^n
1/(1.0175)^40
0.499601
value of bond
Interest*PVAF + face value*PVF
90000*28.59423 + 4000000*..499601
4571885
2-
Amortization table
Semiannual period
cash paid = bond payable*2.35%
interest expense = carrying value of bond*1.75%
premium amortized amortized = cash paid-interest expense
carrying value in premium on bond payable = previous balance-premium amortized
bonds payable
carrying value of bond payable = bond payable+ carrying value of bond to be amortized
0
571884.7
4000000
4571885
1
90000
80007.98
9992.018
561892.7
4000000
4561893
2
90000
79833.12
10166.88
551725.8
4000000
4551726
3
90000
79655.2
10344.8
541381
4000000
4541381
4
90000
79474.17
10525.83
530855.2
4000000
4530855
5
90000
79289.97
10710.03
520145.1
4000000
4520145
6
90000
79102.54
10897.46
509247.7
4000000
4509248
7
90000
78911.83
11088.17
498159.5
4000000
4498160
8
90000
78717.79
11282.21
486877.3
4000000
4486877
9
90000
78520.35
11479.65
475397.7
4000000
4475398
10
90000
78319.46
11680.54
463717.1
4000000
4463717
11
90000
78115.05
11884.95
451832.2
4000000
4451832
12
90000
77907.06
12092.94
439739.2
4000000
4439739
13
90000
77695.44
12304.56
427434.7
4000000
4427435
14
90000
77480.11
12519.89
414914.8
4000000
4414915
15
90000
77261.01
12738.99
402175.8
4000000
4402176
16
90000
77038.08
12961.92
389213.9
4000000
4389214
17
90000
76811.24
13188.76
376025.1
4000000
4376025
18
90000
76580.44
13419.56
362605.5
4000000
4362606
19
90000
76345.6
13654.4
348951.1
4000000
4348951
20
90000
76106.64
13893.36
335057.8
4000000
4335058
21
90000
75863.51
14136.49
320921.3
4000000
4320921
22
90000
75616.12
14383.88
306537.4
4000000
4306537
23
90000
75364.4
14635.6
291901.8
4000000
4291902
24
90000
75108.28
14891.72
277010.1
4000000
4277010
25
90000
74847.68
15152.32
261857.8
4000000
4261858
26
90000
74582.51
15417.49
246440.3
4000000
4246440
27
90000
74312.71
15687.29
230753
4000000
4230753
28
90000
74038.18
15961.82
214791.2
4000000
4214791
29
90000
73758.85
16241.15
198550
4000000
4198550
30
90000
73474.63
16525.37
182024.6
4000000
4182025
31
90000
73185.43
16814.57
165210.1
4000000
4165210
32
90000
72891.18
17108.82
148101.2
4000000
4148101
33
90000
72591.77
17408.23
130693
4000000
4130693
34
90000
72287.13
17712.87
112980.1
4000000
4112980
35
90000
71977.15
18022.85
94957.3
4000000
4094957
36
90000
71661.75
18338.25
76619.05
4000000
4076619
37
90000
71340.83
18659.17
57959.89
4000000
4057960
38
90000
71014.3
18985.7
38974.19
4000000
4038974
39
90000
70682.05
19317.95
19656.23
4000000
4019656
40
90000
70343.98
19656.02
0
4000000
4000000
3-
date
explanation
debit
credit
Dec 31 2014
cash
4571885
premium on bond payable
571884.7
bonds payable
4000000
june 30 2015
interest expense
80007.98
premium on bond payable
9992.018
cash
90000
dec 31 2015
interest expense
79833.12
premium on bond payable
10166.88
90000
cash
90000
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