BondAmort_Example__blank__no-FVoption_S11
Document Sample
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
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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.
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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
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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=
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Acct 414 Prof. Teresa Gordon
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Acct 414 Prof. Teresa Gordon
interest payment date
interest payment date
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