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
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
Bonds Payable

10/01/08 Interest expense
Cash

3 Months to accrue interest

12/31/08 Interest Expense
Interest Payable

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

10/02/09 Interest expense
Cash                                                                         250,000.00

12/31/2009 Interest Expense
Interest Payable

4/2/2010 Interest expense

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

Cash
Interest payable
-           250,000.00

10/02/10 Interest expense
Interest Expense
Cash

12/31/2010 Interest Expense
Interest 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
Bonds Payable

10/01/08 Interest expense
Cash

Months to accrue interest

12/31/08 Interest Expense
Interest Payable

04/01/09 Interest Expense
Interest Payable
Cash
-            -                    0

10/02/09 Interest expense
Cash

12/31/2009 Interest Expense
Interest Payable

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

4/2/2010 Interest expense
Cash
Interest payable
-                    -

10/02/10 Interest expense
Interest Expense
Cash

12/31/2010 Interest Expense                                  1/2
Interest 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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