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

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

Step-by-step 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