Question

Sanford Co. sells $500,000 of 10% bonds on March 1, 2020. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2023. The bonds yield 12%. Give entries through December 31, 2021.

Required:
Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization. Amortize premium or discount on interest dates and at year-end.

Answer 1

Answer:

Sanford Co.

Bond Amortization Schedule  

Period     PV           PMT                Interest                FV

1          $468,951.03         $25,000.00         $28,137.06         $472,088.09

2        $472,088.09         $25,000.00        $28,325.29          $475,413.38

Year #1 end

3        $475,413.38         $25,000.00         $28,524.80          $478,938.18

4        $478,938.18         $25,000.00         $28,736.29         $482,674.47

Year #2 end

5      $482,674.47         $25,000.00         $28,960.47         $486,634.94

6     $486,634.94         $25,000.00          $29,198.10          $490,833.04

Year #3 end

7    $490,833.04          $25,000.00        $29,449.98         $495,283.02

8    $495,283.02         $25,000.00         $29,716.98         $500,000.00

Year #4 end

Explanation:

a) Data and Calculations:

Face value of bonds = $500,000

Proceeds from bonds = $468,951

Bonds Discounts = $31.049

Coupon interest rate = 10%

Effective interest rate = 12%

N (# of periods)  8

I/Y (Interest per year)  12

PMT (Periodic Payment)  25000

FV (Future Value)  500000

Results

PV = $-468,951.03

Sum of all periodic payments $200,000.00

Total Interest $231,048.97