Chapter 14, Problem 4BTN

To determine

Concept Introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

Requirement-1:

To Prepare:

The blank table for the amortization of the bond's premium using the effective interest amortization method

Answer to Problem 4BTN

The blank table for the amortization of the bond's premium using the effective interest amortization method is as follows:

Amortization Table
Using the effective interest rate method
S.No.	Semiannual Interest Period-End	Cash Interest Paid	Bond Interest Expense	Premium Amortized	Unamortized Premium	Carrying Value

Explanation of Solution

The blank table for the amortization of the bond's premium using the effective interest amortization method is as follows:

Amortization Table
Using the effective interest rate method
S.No.	Semiannual Interest Period-End	Cash Interest Paid	Bond Interest Expense	Premium Amortized	Unamortized Premium	Carrying Value

To determine

Concept Introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

Requirement-2:

To Prepare:

The amortization table

Answer to Problem 4BTN

The amortization table is as follows:

Amortization Table
Using the effective interest rate method
S.No.	Semiannual Interest Period-End	Cash Interest Paid	Bond Interest Expense	Premium Amortized	Unamortized Premium	Carrying Value
0	Jan. 1, 2019	$ -		$ -	$4,100	$ 104,100
1	Jun. 30, 2019	$ 4,500	$ 4,164	$336	$3,764	$ 103,764
2	Dec. 31, 2019	$ 4,500	$ 4,151	$349	$3,415	$ 103,415
3	Jun. 30, 2020	$ 4,500	$ 4,137	$363	$3,051	$ 103,051
4	Dec. 31, 2020	$ 4,500	$ 4,122	$378	$2,673	$ 102,673
5	Jun. 30, 2021	$ 4,500	$ 4,107	$393	$2,280	$ 102,280
6	Dec. 31, 2021	$ 4,500	$ 4,091	$409	$1,871	$ 101,871
7	Jun. 30, 2022	$ 4,500	$ 4,075	$425	$1,446	$ 101,446
8	Dec. 31, 2022	$ 4,500	$ 4,058	$442	$1,004	$ 101,004
9	Jun. 30, 2023	$ 4,500	$ 4,040	$460	$ 544	$ 100,544
10	Dec. 31, 2023	$ 4,500	$ 4,022	$478	$ 66	$ 100,066

Explanation of Solution

The amortization table calculations are explained as follows:

Amortization Table
Using the effective interest rate method
S.No.	Semiannual Interest Period-End	Cash Interest Paid	Bond Interest Expense	Premium Amortized	Unamortized Premium	Carrying Value
		A=100000*9%/2	B =Prior E *8%/2	C =A-B	D =Prior D -C	E = 100000+D
0	Jan. 1, 2019	$ -		$ -	$4,100	$ 104,100
1	Jun. 30, 2019	$ 4,500	$ 4,164	$336	$3,764	$ 103,764
2	Dec. 31, 2019	$ 4,500	$ 4,151	$349	$3,415	$ 103,415
3	Jun. 30, 2020	$ 4,500	$ 4,137	$363	$3,051	$ 103,051
4	Dec. 31, 2020	$ 4,500	$ 4,122	$378	$2,673	$ 102,673
5	Jun. 30, 2021	$ 4,500	$ 4,107	$393	$2,280	$ 102,280
6	Dec. 31, 2021	$ 4,500	$ 4,091	$409	$1,871	$ 101,871
7	Jun. 30, 2022	$ 4,500	$ 4,075	$425	$1,446	$ 101,446
8	Dec. 31, 2022	$ 4,500	$ 4,058	$442	$1,004	$ 101,004
9	Jun. 30, 2023	$ 4,500	$ 4,040	$460	$ 544	$ 100,544
10	Dec. 31, 2023	$ 4,500	$ 4,022	$478	$ 66	$ 100,066
	Total	$ 45,000	$ 40,966	$ 4,034

To determine

Concept Introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

Requirement-3:

To identify:

Each Column of the amortization table

Answer to Problem 4BTN

Each Column of the amortization table is as follows:

Amortization Table
Using the effective interest rate method
S.No.	Semiannual Interest Period-End	Cash Interest Paid	Bond Interest Expense	Premium Amortized	Unamortized Premium	Carrying Value

Explanation of Solution

Each Column of the amortization table is explained as follows:

Amortization Table
Using the effective interest rate method
S.No.	Semiannual Interest Period-End	Cash Interest Paid	Bond Interest Expense	Premium Amortized	Unamortized Premium	Carrying Value
		A=100000*9%/2	B =Prior E *8%/2	C =A-B	D =Prior D -C	E = 100000+D

To determine

Concept Introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

Requirement-4:

To identify:

Total Bond interest expense if bonds are not retired before the maturity

Answer to Problem 4BTN

Total Bond interest expense if bonds are not retired before the maturity shall be $40,966

Explanation of Solution

The Total bond interest expense is calculated as follows:

Amortization Table
Using the effective interest rate method
S.No.	Semiannual Interest Period-End	Cash Interest Paid	Bond Interest Expense	Premium Amortized	Unamortized Premium	Carrying Value
		A=100000*9%/2	B =Prior E *8%/2	C =A-B	D =Prior D -C	E = 100000+D
0	Jan. 1, 2019	$ -		$ -	$4,100	$ 104,100
1	Jun. 30, 2019	$ 4,500	$ 4,164	$336	$3,764	$ 103,764
2	Dec. 31, 2019	$ 4,500	$ 4,151	$349	$3,415	$ 103,415
3	Jun. 30, 2020	$ 4,500	$ 4,137	$363	$3,051	$ 103,051
4	Dec. 31, 2020	$ 4,500	$ 4,122	$378	$2,673	$ 102,673
5	Jun. 30, 2021	$ 4,500	$ 4,107	$393	$2,280	$ 102,280
6	Dec. 31, 2021	$ 4,500	$ 4,091	$409	$1,871	$ 101,871
7	Jun. 30, 2022	$ 4,500	$ 4,075	$425	$1,446	$ 101,446
8	Dec. 31, 2022	$ 4,500	$ 4,058	$442	$1,004	$ 101,004
9	Jun. 30, 2023	$ 4,500	$ 4,040	$460	$ 544	$ 100,544
10	Dec. 31, 2023	$ 4,500	$ 4,022	$478	$ 66	$ 100,066
	Total	$ 45,000	$ 40,966	$ 4,034

To determine

Concept Introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

Requirement-5:

To discuss:

The comparison between the amortization table for premium and for discount

Answer to Problem 4BTN

The comparison between the amortization table for premium and for discount is shown as below:

Amortization Table- Premium
Using the effective interest rate method
S.No.	Semiannual Interest Period-End	Cash Interest Paid	Bond Interest Expense	Premium Amortized	Unamortized Premium	Carrying Value

Amortization Table-Discount
Using the effective interest rate method
S.No.	Semiannual Interest Period-End	Cash Interest Paid	Bond Interest Expense	Discount Amortized	Unamortized Discount	Carrying Value

Explanation of Solution

The comparison between the amortization table for premium and for discount is shown as below:

Amortization Table- Premium
Using the effective interest rate method
S.No.	Semiannual Interest Period-End	Cash Interest Paid	Bond Interest Expense	Premium Amortized	Unamortized Premium	Carrying Value

Amortization Table-Discount
Using the effective interest rate method
S.No.	Semiannual Interest Period-End	Cash Interest Paid	Bond Interest Expense	Discount Amortized	Unamortized Discount	Carrying Value