intermediate accounting

 

Excel Assignment : Prepare an Amortization lern Installment Notes Payable

Excel Assignment 1A: Prepare an Amortization Table for an Instalment Notes Payable

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1B: Preparing an Amortization Table for a (Discounted) Term Loan with Stated Interest Rate < Market Interest Rate

1C: Amortization Tables for Bonds Payable Issued at Par, at a Premium, at a discount

 

Prepare an Amortization Table for B/P Issued at a Discount/Premium Using the Straight Line Method

 

2

>Example

1 4

A.1

(Assume we use Straight Line Method)

1

, the Ruffin Corporation issued $40,000 par value,

, four-year bonds that mature on December

1, 2019. Ruffin will pay interest semiannually on June 30 and December 31. On the date Ruffin issued the bonds, the market rate of interest was

. The company’s fiscal year ends on December 31. What is the issue price of this bond? Prepare the journal entry to record the issuance. Prepare an amortization schedule over the four-year period using the STRAIGHT LINE method. Prepare the journal entries to record the inter¬est entries for the first year. Prepare the journal entry to record the payment of the bonds at maturity. Prepare the t-accounts for the bond payable and bond discount accounts for the life of the bond.

every semiannual year =

x Semiannual stated rate

6%
4%
4

– Present Value of the Bonds Payable

Cash Interest

(Prior CV + Discount amortized)

0

1

2

3

/17

4

/17

Bonds Payable

5

6

Carrying Value

7

8

= Face Value

From Example 14.

 8
Example 14A.1: On January 1,2

 0 6 4% 3 6%
Since stated interest rate 4% < market interest rate 6%, we can predict and prove that these bonds will be issued at a discount (< Face Value)
When we issue the Bonds payable, we promise to pay:
(1)

Cash Interest Face Value of the

Bonds Payable
(2) Principal of $40,000 at the end of the 4th year
Every period we will pay cash interest
Annual Market Interest Rate Semiannual Market Interest Rate
Annual Stated Interest Rate Semiannual Stated Interest Rate FV
Years Number of semiannual periods
Face Value of the Bonds Payable
The Bonds payable is issued at a discount
Present Value of the Bonds Payable = Face Value
Total Interest expense = Total Cash Interest + Total Discount
Period Date S-L Interest Expense Discount Amortized (S-L Method) Carrying Value
1/1/16 Initial CV = PV of the Bonds Payable
6/30/16
12/28/16
6/2

 7 Balance Sheet Presentation:
12/2

 5
6/24/18 Less: Discount on B/P
12/22/18
6/21/19
12/19/19

Example 14A.2

? What is the journal entry to record the issuance? Prepare an amortization table using the STRAGHT LINE method. What journal entries are required to record interest expense for the first year? Prepare the journal entry to record the maturity of the bonds. Prepare the t-accounts for the bond payable and bond premium accounts for the life of the bond.

When we issue the Bonds payable, we promise to pay:

(2) Principal of $40,000 at the end of the 4th year

Annual Market Interest Rate Semiannual Market Interest Rate

2%

Annual Stated Interest Rate Semiannual Stated Interest Rate FV
4%
Years Number of semiannual periods
4
Face Value of the Bonds Payable

Present Value of the Bonds Payable

Period Date Cash Interest S-L Interest Expense

0 1/1/16 Initial CV = PV of the Bonds Payable
1 6/30/16
2 12/28/16
3

Balance Sheet Presentation:
4

Bonds Payable

5 6/24/18

6 12/22/18 Carrying Value
7 6/21/19
8 12/19/19 = Face Value

From Example 14.7 (Assume we use the Straight Line Method)
Example 14A.2: On January 1,2016, the Ruffin Corporation issued $40,000 par value, 4%,four-year bonds that mature on December 31, 2019. Ruffin will pay interest semiannually on June 30 and December 31. The company’s fiscal year ends on December 31. What is the issue price of this bond assuming that the market rate of interest is

2%
Since stated interest rate 4% > market interest rate 2%, we can predict and prove that these bonds will be issued at a premium (> Face Value)
(1) Cash Interest every semiannual year = Face Value of the Bonds Payable x Semiannual stated rate
Every period we will pay cash interest
The Bonds payable is issued at a premium
= Present Value of the Bonds Payable – Face Value
Total Interest expense = Total Cash Interest – Total Premium
Premium Amortized Carrying Value (Prior CV – Premium amortized)
6/27/17 12/25/17
Add: Premium on B/P

2

>Ex

1 4

.

6

Bonds Issued at PAR

.6: On January 1,2

, the Ruffin Corporation issued $40,000 par value,

, four-year bonds that mature on December

1, 201

. Ruffin will pay interest quarterly on March 31, June 30, September 30, and December 31. The company’s fiscal year ends on December 31. What is the issue price of this bond assuming the market rate of interest is 4%? What is the journal entry to record the bond issue? What are the journal entries to record the first year’s interest? What entry is made at maturity?

every quarter =

x Qaurterly stated rate

4%

4%

4

– Present Value of the Bonds Payable

x Quarterly Market Interest Rate

Cash Interest

0

1

2

3

4

/31/16

Bonds Payable

Carrying Value

6

7

9

12

14

16

= Face Value

Example

14 0 16 4% 3 9
Since stated interest rate = market interest rate, we can predict and prove that these bonds will be issued at PAR (Face Value)
When we issue the Bonds payable, we promise to pay:
(1)

Cash Interest Face Value of the

Bonds Payable
(2) Principal of $40,000 at the end of the 4th year
Every Quarter we will pay cash interest
Annual Market Interest Rate Quarterly Market Interest Rate
Annual Stated Interest Rate Quarterly Stated Interest Rate FV
Years Number of Quarters
Face Value of the Bonds Payable
The Bonds payable is issued at PAR. No premium or Discount
Present Value of the Bonds Payable = Face Value
Effective Rate Method
= Prior

Carrying Value
Period Date Effective Interest Discount/

Premium Amortized Carrying Value (Prior CV + Discount amortized or – Premium amortized)
1/1/16 Initial CV = PV of the Bonds Payable
3/31/16
6/30/16
9/30/16 Balance Sheet Presentation:
12
5 3/31/1

 7
6/30/17
9/30/17
8 12/31/17
3/31/18
10 6/30/18
11 9/30/18
12/31/18
13 3/31/19
6/30/19
15 9/30/19
12/31/19

Ex 14.7 Bonds issued at premium

? What is the journal entry to record the issuance? Prepare an amortization table using the effective interest rate method. What journal entries are required to record interest expense for the first year? Prepare the journal entry to record the maturity of the bonds. Prepare the t-accounts for the bond payable and bond premium accounts for the life of the bond.

When we issue the Bonds payable, we promise to pay:

(2) Principal of $40,000 at the end of the 4th year

Annual Market Interest Rate

2%
Annual Stated Interest Rate

FV

4%

Years

4
Face Value of the Bonds Payable

Present Value of the Bonds Payable

Effective Rate Method

Period Date Cash Interest Effective Interest Premium Amortized

0 1/1/16 Initial CV = PV of the Bonds Payable

1 6/30/16
2

3

Balance Sheet Presentation:

4

Bonds Payable

5

6

Carrying Value

7

8

= Face Value

Example 14.7: On January 1,2016, the Ruffin Corporation issued $40,000 par value, 4%,four-year bonds that mature on December 31, 2019. Ruffin will pay interest semiannually on June 30 and December 31. The company’s fiscal year ends on December 31. What is the issue price of this bond assuming that the market rate of interest is

2%
Since stated interest rate 4% > market interest rate 2%, we can predict and prove that these bonds will be issued at a premium (> Face Value)
(1) Cash Interest every semiannual year = Face Value of the Bonds Payable x Semiannual stated rate
Every period we will pay cash interest
Semiannual Market Interest Rate
Semiannual Stated Interest Rate
Number of semiannual periods
The Bonds payable is issued at a premium
= Present Value of the Bonds Payable – Face Value
= Prior Carrying Value x Semiannual Market Interest Rate
Carrying Value (Prior CV – Premium amortized)
12/28/16
6/27/17
12/25/17
6/24/18 Add: Premium on B/P
12/22/18
6/21/19
12/19/19

Ex14.8 Bonds issued at discount

. The company’s fiscal year ends on December 31. What is the issue price of this bond? Prepare the journal entry to record the issuance. Prepare an amortization schedule over the four-year period using the effective interest rate method. Prepare the journal entries to record the inter¬est entries for the first year. Prepare the journal entry to record the payment of the bonds at maturity. Prepare the t-accounts for the bond payable and bond discount accounts for the life of the bond.

When we issue the Bonds payable, we promise to pay:
(1) Cash Interest every semiannual year = Face Value of the Bonds Payable x Semiannual stated rate
(2) Principal of $40,000 at the end of the 4th year

Annual Market Interest Rate Semiannual Market Interest Rate

6%

Annual Stated Interest Rate Semiannual Stated Interest Rate FV
4%
Years Number of semiannual periods
4
Face Value of the Bonds Payable

Present Value of the Bonds Payable

Effective Rate Method
= Prior Carrying Value x Semiannual Market Interest Rate

Period Date Cash Interest Effective Interest

0 1/1/16 Initial CV = PV of the Bonds Payable
1 6/30/16
2 12/28/16
3 6/27/17 Balance Sheet Presentation:
4 12/25/17 Bonds Payable

5 6/24/18

6 12/22/18 Carrying Value
7 6/21/19
8 12/19/19 = Face Value

Example 14.8: On January 1,2016, the Ruffin Corporation issued $40,000 par value, 4%, four-year bonds that mature on December 31, 2019. Ruffin will pay interest semiannually on June 30 and December 31. On the date Ruffin issued the bonds, the market rate of interest was

6%
Since stated interest rate 4% < market interest rate 6%, we can predict and prove that these bonds will be issued at a discount (< Face Value)
Every period we will pay cash interest
The Bonds payable is issued at a discount
= Face Value – Present Value of the Bonds Payable
Discount Amortized Carrying Value (Prior CV + Discount amortized)
Less: Discount on B/P

2

>Sheet

1

.

: AS&K, Inc. borrowed $2

,000 by issuing an

, three-year note on January 1,2014. AS&K must make payments every six months, beginning June 30,2014. The note will be fully paid at maturity on December 31,201

. AS&K prepares annual financial statements. Prepare the amortization table for this note, along with any necessary journal entries. Also prepare the t-account for the notes payable account.

250000

8%
3
0
1

2

3

4

5

6

Example 1

4 3 5 0 8% 6
Principal we borrowed on January 1, 2014 = PV of all semiannual installment payments in the future
250000
Annual Interest Rate Semiannual Interest rate
Years Semiannual periods
Semiannual installment payment
= Prior Carrying Value x Semiannual Interest Rate
Period Date Total Payment (A) Interest Payment (B) Principal Payment (A-B) Carrying Value (Prior CV – Principal paid)
6/30/14
12/31/14
6/30/15
12/31/15
6/30/16
12/31/16

2

>Sheet

1

.

: JN Min Corporation, a calendar-year company, borrowed $1,

00,000 on August 15, 2015. The note specifies an

%

interest rate and is due in three years. Interest is paid quarterly. The fiscal year ends on December

1. The current market rate is

%

. Interest is compounded quarterly. JN Min prepares quarterly financial statements. Prepare the amortization table for the note and the journal entries for 2015.

every quarter =

x Qaurterly stated rate

12%
8%
3
Face Value of the Notes Payable

– Present Value of the Notes Payable

Cash Interest

0

1

/15/15

2

3

4

5

6

7

8

11

12

= Face Value

Example 1

4 5 0 8 3 12
When we issue this notes payable, we promise to pay:
(1)

Cash Interest Face Value of the Notes Payable
(2) Principal of $1,000,000 at the end of the 3rd year
Every Quarter we will pay cash interest
Annual Market Interest Rate Quarterly Market Interest Rate
Annual Stated Interest Rate Quarterly Stated Interest Rate FV
Years Number of Quarters
The notes payable is issued at a discount of
Present Value of the Notes Payable = Face Value
= Prior Carrying Value x Quarterly Market Interest Rate
Period Date Effective Interest Discount Amortized Carrying Value (Prior CV + Discount amortized)
8/15/15 Initial CV = PV of the Notes Payable
11
2/15/1

6
5/15/16
8/15/16
11/15/16
2/15/1

7
5/15/17
8/15/17
9 11/15/17
10 2/15/18
5/15/18
8/15/18

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