Homework SourseOn January 1 2016 Nick issued a 100000 bond that matures in
On January 1, 2016 Nick issued a $100,000 bond that matures in 20 years and pays 4% interest (stated or coupon rate) a year. (Payment date is December 31.) The market (yield) rate is 6%.assume the bond was sold @ 95.
Complete the first two years of the following table:
Year
Interest Expense
Book
1/1/16
1
2
4. Complete the entries at the end of the year for the first two years. Please use the table above.
Date
Accounts
Debit(s)
Credit(s)
12/31/16
Date
Accounts
Debit(s)
Credit(s)
12/31/17
| Year | Interest Expense | Book | ||
| 1/1/16 | ||||
| 1 | ||||
| 2 |
Solution
Answer 1
Year
(A)
Interest Expense($)
B = 6 % * previous row balance of cell \"D\"
Interest actually paid ($)
C = $100,000 * 4 %
Discount Amortise
D = B- C
Net Book Value($)
D = previous balance + D
Answer 4
Journal Entries
Note : As Nothing is mentioned in the question , we had applied effective interest method for amortisation of discount.
| Year (A) | Interest Expense($) B = 6 % * previous row balance of cell \"D\" | Interest actually paid ($) C = $100,000 * 4 % | Discount Amortise D = B- C | Net Book Value($) D = previous balance + D |
|---|---|---|---|---|
| 01/01/16 | Nil | Nil | Nil | 95,000 ($100,000 * 95 %) |
| 31 / 01 /16 | 5,700 | 4,000 | 1,700 | 96,700 |
| 31/01/17 | 5,802 | 4,000 | 1,802 | 98,502 |
