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Oak Branch Inc. issued $760,000 of 9%, 10-year bonds when the market rate was 8%. They received $811,656. Interest was paid semi-annually. Prepare an amortization table for the first three years of the bonds. Round intermediate and final answers to whole dollar amount.

Cash Interest payment Interest on Carrying Value Amortization of Premium Carrying Value
Jan. 1, Year 1 ___________ ____________ _____________ ________
June 30, Year 1 ___________ ____________ _____________ ________
Dec. 31, Year 1 ___________ ____________ _____________ ________
June 30, Year 2 ___________ ____________ _____________ ________
Dec. 31, Year 2 ___________ ____________ _____________ ________
June 30, Year 3 ___________ ____________ _____________ ________
Dec. 31, Year 3 ___________ ____________ _____________ ________

User BabakHSL
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Oak Branch Inc. issued $760,000 of 9%, 10-year bonds when the market rate was 8%. They received $811,656. Interest was paid semi-annually. The following table shows the amortization table for the first three years of the bonds:Carrying Value = Face value + Premium on bondsJan. 1, Year 1:Cash Interest payment = Carrying value x Coupon rate / 2= $836,000 × 9% / 2 = $37,620Interest on Carrying Value = Carrying value x Market rate / 2= $836,000 × 8% / 2 = $33,440Amortization of Premium = Cash interest payment – Interest on carrying value= $37,620 – $33,440 = $4,180Carrying Value = Carrying value – Amortization of premium= $836,000 – $4,180 = $831,820June 30, Year 1:Cash Interest payment = Carrying value x Coupon rate / 2= $831,820 × 9% / 2 = $37,430Interest on Carrying Value = Carrying value x Market rate / 2= $831,820 × 8% / 2 = $33,272Amortization of Premium = Cash interest payment – Interest on carrying value= $37,430 – $33,272 = $4,158Carrying Value = Carrying value – Amortization of premium= $831,820 – $4,158 = $827,662Dec. 31, Year 1:Cash Interest payment = Carrying value x Coupon rate / 2= $827,662 × 9% / 2 = $37,244Interest on Carrying Value = Carrying value x Market rate / 2= $827,662 × 8% / 2 = $33,106Amortization of Premium = Cash interest payment – Interest on carrying value= $37,244 – $33,106 = $4,138Carrying Value = Carrying value – Amortization of premium= $827,662 – $4,138 = $823,524June 30, Year 2:Cash Interest payment = Carrying value x Coupon rate / 2= $823,524 × 9% / 2 = $37,057Interest on Carrying Value = Carrying value x Market rate / 2= $823,524 × 8% / 2 = $32,941Amortization of Premium = Cash interest payment – Interest on carrying value= $37,057 – $32,941 = $4,116Carrying Value = Carrying value – Amortization of premium= $823,524 – $4,116 = $819,408Dec. 31, Year 2:Cash Interest payment = Carrying value x Coupon rate / 2= $819,408 × 9% / 2 = $36,869Interest on Carrying Value = Carrying value x Market rate / 2= $819,408 × 8% / 2 = $32,776Amortization of Premium = Cash interest payment – Interest on carrying value= $36,869 – $32,776 = $4,093Carrying Value = Carrying value – Amortization of premium= $819,408 – $4,093 = $815,315June 30, Year 3:Cash Interest payment = Carrying value x Coupon rate / 2= $815,315 × 9% / 2 = $36,680Interest on Carrying Value = Carrying value x Market rate / 2= $815,315 × 8% / 2 = $32,625Amortization of Premium = Cash interest payment – Interest on carrying value= $36,680 – $32,625 = $4,055Carrying Value = Carrying value – Amortization of premium= $815,315 – $4,055 = $811,260Dec. 31, Year 3:Cash Interest payment = Carrying value x Coupon rate / 2= $811,260 × 9% / 2 = $36,491Interest on Carrying Value = Carrying value x Market rate / 2= $811,260 × 8% / 2 = $32,450Amortization of Premium = Cash interest payment – Interest on carrying value= $36,491 – $32,450 = $4,041Carrying Value = Carrying value – Amortization of premium= $811,260 – $4,041 = $807,219Hence, the required Amortization table for the first three years of the bonds is as follows:Carrying Value = Face value + Premium on bondsJan. 1, Year 1: Cash Interest payment = $37,620 Interest on Carrying Value = $33,440 Amortization of Premium = $4,180 Carrying Value = $831,820June 30, Year 1: Cash Interest payment = $37,430 Interest on Carrying Value = $33,272 Amortization of Premium = $4,158 Carrying Value = $827,662Dec. 31, Year 1: Cash Interest payment = $37,244 Interest on Carrying Value = $33,106 Amortization of Premium = $4,138 Carrying Value = $823,524June 30, Year 2: Cash Interest payment = $37,057 Interest on Carrying Value = $32,941 Amortization of Premium = $4,116 Carrying Value = $819,408Dec. 31, Year 2: Cash Interest payment = $36,869 Interest on Carrying Value = $32,776 Amortization of Premium = $4,093 Carrying Value = $815,315June 30, Year 3: Cash Interest payment = $36,680 Interest on Carrying Value = $32,625 Amortization of Premium = $4,055 Carrying Value = $811,260Dec. 31, Year 3: Cash Interest payment = $36,491 Interest on Carrying Value = $32,450 Amortization of Premium = $4,041 Carrying Value = $807,219

User Cybertextron
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