Question

On January 1 of this year, Ikuta Company issued a bond with a face value of $115,000 and a coupon rate of 4 percent. The bond matures in 3 years and pays interest every December 31. When the bond was issued, the annual market rate of interest was 5 percent. Ikuta uses the effective-interest amortization method. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your answers to whole dollars.)
Prepare a bond amortization schedule for all three years of the bond's life.

Answer 1

Answer:

The carrying value at year three end is $115,000.

Explanation:

The bond amortization schedule shows the how the interest expense is calculated as well as the coupon payment at each year end.

The carrying value at each year end is the opening carrying value in that year plus interest expense(as % of opening carrying value) minus the coupon payment(as % of face value).

In the beginning carrying value is the price the bond was issued,which could be computed using the pv formula in excel.

=-pv(rate,nper,pmt,fv)

the rate is yield to maturity of 5%

nper is the number of coupon payments to be made by the bond,which is 3

pmt is the yearly coupon payment which is:$115,000*4%=$4,600

fv is the face value of $115,000

=-pv(5%,3,4600,115000)=$111,868.26

Find attached amortization schedule.

Download xlsx