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BondAmort_Example__blank__no-FVoption_S11

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					Acct 414                                                                                                                   Prof. Teresa Gordon



    Straight-line Method              Face value =        $ 5,000,000
                                      Coupon rate=                10% compounded semiannually
                                      Semi-annual
                                      4 year bond                       Premium =
                                                                        periods to amortize
                                                     5%     PLUG        Amortization/period
          n                Date         Interest Paid       Interest       Amortization       Book Value
                                                            Expense
          0            4/1/2008                                                                  5,164,897
          1            10/1/2008
          2            4/1/2009
          3            10/1/2009
          4            4/1/2010                                                                              Book value
          5            10/1/2010                                                                             moves
          6            4/1/2011                                                                              toward
          7            10/1/2011                                                                             face value
          8            4/1/2012                                                                              at maturity
                                                                                          0




    Example for Acct 414
    Straight-line method
                              5.00%                                     Face Value:             5,000,000
        Period          Interest          Interest          Amorti-         Carrying          BALANCE            FACE
                          Paid            Expense           zation           Value            PREMIUM           VALUE
0        04/01/08                                                          5,164,897.15        164,897.15       5,000,000
1        10/01/08      250,000.00         229,387.86        20,612.14      5,144,285.01        144,285.01       5,000,000
2        04/01/09      250,000.00         229,387.86        20,612.14      5,123,672.86        123,672.86       5,000,000
3        10/01/09      250,000.00         229,387.86        20,612.14      5,103,060.72        103,060.72       5,000,000
4        04/01/10      250,000.00         229,387.86        20,612.14      5,082,448.58         82,448.58       5,000,000

    Journal entries:                  Example for Acct 414                       STRAIGHT LINE
                                      Assuming no fair value option            Debit         Credit
         04/01/08 Cash
                  Premium on Bonds Payable
                  Bonds Payable

         10/01/08 Interest expense
                  Premium on Bonds Payable
                  Cash

                 3 Months to accrue interest

         12/31/08 Interest Expense
                  Interest Payable
                  Premium on Bonds Payable

         04/02/09 Interest Expense
                  Interest Payable
                  Cash                                                                         250,000.00
                  Premium on Bonds Payable
                                                                                      -        250,000.00

         10/02/09 Interest expense
                  Premium on Bonds Payable
                  Cash                                                                         250,000.00

       12/31/2009 Interest Expense
                  Interest Payable
                  Premium on Bonds Payable

         4/2/2010 Interest expense




24ede6d8-6863-4f0d-8594-aecb0dfdc67d.xlsx                          5/15/2012                                                          Page 1
Acct 414                                                                                                 Prof. Teresa Gordon



               Premium on Bonds Payable
               Cash
               Interest payable
                                                                                -           250,000.00

      10/02/10 Interest expense
               Interest Expense
               Cash

    12/31/2010 Interest Expense
               Interest Payable
               Premium on Bonds Payable

               Check for pdf file with additional journal entries that would be necessary
               if we exercised the "fair value option" when the bonds were issued.




24ede6d8-6863-4f0d-8594-aecb0dfdc67d.xlsx                    5/15/2012                                              Page 2
Acct 414                                                                                                                  Prof. Teresa Gordon



                                      Face value =            $       5,000,000
    Efffective Interest Method        Coupon rate=                          10% compounded semiannually

                                                              Write formula:
                                                         5%                            PLUG
          n              Date            Interest Paid         Interest Expense      Amortization   Book Value
          0             4/1/2007                                                                       5,164,897
          1            10/1/2007
          2             4/1/2008
          3            10/1/2008
          4             4/1/2009                                                                                   Book value
          5            10/1/2009                                                                                   moves
          6             4/1/2010                                                                                   toward
          7            10/1/2010                                                                                   face value
          8             4/1/2011                                                                                   at maturity




    Example for Acct 414
    Effective Interest Method
                              5.00%             4.500%                          Face Value:           5,000,000
       Period           Interest           Interest                 Amorti-         Carrying        BALANCE               FACE
                          Paid             Expense                  zation            Value         PREMIUM               VALUE
0       04/01/08                                                                    5,164,897.15     164,897.15            5,000,000
1       10/01/08        250,000.00          232,420.37                17,579.63     5,147,317.52     147,317.52            5,000,000
2       04/01/09        250,000.00          231,629.29                18,370.71     5,128,946.81     128,946.81            5,000,000
3       10/01/09        250,000.00          230,802.61                19,197.39     5,109,749.42     109,749.42            5,000,000


    Journal entries:                  Example for Acct 414                        EFFECTIVE INTEREST METHOD
                                      Traditional - no fair value option               Debit         Credit
        04/01/08 Cash
                 Premium on Bonds Payable
                 Bonds Payable

        10/01/08 Interest expense
                 Premium on Bonds Payable
                 Cash


                   Months to accrue interest

        12/31/08 Interest Expense
                 Interest Payable
                 Premium on Bonds Payable

         04/01/09 Interest Expense
                  Interest Payable
                  Cash
                  Premium on Bonds Payable                                                                         plug
                                                                                                -            -                    0

        10/02/09 Interest expense
                 Premium on Bonds Payable
                 Cash

      12/31/2009 Interest Expense
                 Interest Payable
                 Premium on Bonds Payable




24ede6d8-6863-4f0d-8594-aecb0dfdc67d.xlsx                                5/15/2012                                                     Page 3
Acct 414                                                                                                              Prof. Teresa Gordon



      4/2/2010 Interest expense
               Premium on Bonds Payable
               Cash
               Interest payable
                                                                                       -                    -

     10/02/10 Interest expense
              Interest Expense
              Cash

    12/31/2010 Interest Expense                                  1/2
               Interest Payable
               Premium on Bonds Payable



               Check for pdf file with additional journal entries that would be necessary
               if we exercised the "fair value option" when the bonds were issued.

 Fair value disclosure - find the fair value at
   12/31/2008 Assume yield=11% at year end
                                    Remaining payments = 4/1/08 through 4/1/12 or 7 pmts of $250,000 + FV of $5,000,000
                 pmt=                               Solve for PV=
                 n=                                 Add accrued int                        Amt seller has earned since last interest payment date
                 i                                                                     0 Approximate fair value at year end
                 FV=

    12/31/2009 Assume yield=8% at year end

               pmt=                                 Solve for PV=
               n=                                   Add accrued int                             Amt seller has earned since last interest payment date
               i                                                                            0   Approximate fair value at year end
               FV=




24ede6d8-6863-4f0d-8594-aecb0dfdc67d.xlsx                     5/15/2012                                                            Page 4
Acct 414                                                Prof. Teresa Gordon




24ede6d8-6863-4f0d-8594-aecb0dfdc67d.xlsx   5/15/2012              Page 5
              Acct 414                                                Prof. Teresa Gordon




interest payment date




interest payment date




              24ede6d8-6863-4f0d-8594-aecb0dfdc67d.xlsx   5/15/2012              Page 6

				
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