Question:
The question is incomplete. Below is the complete question and the answer.
On July 1, 2016, the first day of its 2017 fiscal year, the City of Nevin issued at par $2,000,000 of 6 percent term bonds to construct a new city office building. The bonds mature in five years on July 1, 2021. Interest is payable semiannually on January 1 and July 1. A sinking fund is to be established with equal semiannual additions made on June 30 and December 31, with the first addition to be made on December 31, 2016. Cash for the sinking fund additions and the semiannual interest payments will be transferred from the General Fund shortly before the due dates. City officials assume a yield on sinking fund investments of 6 percent per annum, compounded semiannually. Investment earnings are added to the investment principal.
Prepare a schedule in good form showing the required additions to the sinking fund, the expected semiannual earnings, and the end-of-period balance in the sinking fund for each of the 10 semiannual periods. (Note: The future amount of an ordinary annuity of $1 for 10 periods at 3 percent per period is 11.4638793.)
Explanation:
Fiscal Period Required Expected Ending
Year Additions Earnings Balance
2016 1 $174,461.01 0 $174,461.01
2 $174,461.01 $5,233.83 $354,155.86
2017 3 $174,461.01 $10,624.68 $539,241.55
4 $174,461.01 $16,177.25 $729,879.81
2018 5 $174,461.01 $21,896.39 $926,237.21
6 $174,461.01 $27,787.12 $1,128,485.34
2019 7 $174,461.01 $33,854.56 $1,336,800.92
8 $174,461.01 $40,104.03 $1,551,365.96
2020 9 $174,461.01 $46,540.98 $1,772,367.95
10 $174,461.01 $53,171.04 $2,000,000
The calculation for the above journal is given as;
Required Addition =
Bond value/future amount of ordinary annuity at 3% per period
Required Addition = 2,000,000/11.4638793
= $174,461.01 ( for 10 period)
Expected Earnings = Ending bal. x 3%
= $174,461.01 *3%
= $5,233.83 (for 2017).
Note: For the remaining period, the expected earning is calculated the same way as above.
Ending Balance = Previous ending bal. + Required additions + expected earnings
= $174,461.01 + $174,461.01 + $5,233.83
= $354,155.86 ( for year 2017)
Do same for the remaining years.
