Prepare an amortization schedule for the 1st and 2nd years e

Prepare an amortization schedule for the 1st and 2nd years (effective interest method) using the following data:

1. On January 1, 2010 XYZ Co. issued $3,000,000, 6%, 10 year bonds, interest payable on June 30th and December 31st to yield 5%. Use the following format and round to the nearest dollar (may have small rounding error). The bonds were issued for $3,233,834.

Date Cash paid Interest expense Amortization Bond Carry Value

2. Show how this bond would be reported on the balance sheet on 12/31/11.

Solution

1) Amortization Schedule: Date Cash Paid Interest Expense Amortization Bonds Carrying Value January 1, 2010 $                         32,33,834 June 30, 2010 $             90,000 $                  80,846 $            9,154 $                         32,24,680 December 31, 2010 $             90,000 $                  80,617 $            9,383 $                         32,15,297 June 30, 2011 $             90,000 $                  80,382 $            9,618 $                         32,05,679 December 31, 2011 $             90,000 $                  80,142 $            9,858 $                         31,95,821 Working: Semi annual cash paid = Par Value x Semi Annual Coupon Interest = $            30,00,000 x 3% = $                  90,000 Semi annual Interest expense = Beginning Book Value x Semi annual yield = $            32,33,834 x 2.50% = $                  80,846 2) Balance Sheet on 12/31/11 (Partial) Non-Current Liabilities: Bonds Payable $ 30,00,000 Add:Premium on bonds payable $              1,95,821 Bonds Carrying Value $ 31,95,821