You can use the below to build an amortization table and journal entries for a note issued
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Question:
Face value Pick an amount in hundreds of thousands between $100,000 and $1,200,000 (such as $300,000 or $700,000).
Stated rate Pick at a rate (whole number) between 3% and 8% (such as 4% or 7%).
Market rate Pick at a rate (whole number) between 3% and 8% (such as 4% or 7%).
Premium Calculate this amount.
Periods Pick a whole year between 5 and 10 years.
Follow the example on the handout. You'll have to look up the factors yourself. Show your work.
Show your calculation of the present value of the note.
Record the journal entry to issue the note.
Show your amortization table (follow my example).
Show your journal entries (follow my example).
interest-bearing notes - note issued at a discount | ||||||||||||||||
Face value | 400,000.00 | |||||||||||||||
Stated rate | 5.00% | |||||||||||||||
Market rate | 12.00% | |||||||||||||||
Discount | 127,785.00 | |||||||||||||||
Amortization Table | ||||||||||||||||
Period | Beginning | Cash rec'd | Int income | Ending | ||||||||||||
1 | 272,215.00 | 20,000.00 | 32,665.80 | 284,880.80 | ||||||||||||
2 | 284,880.80 | 20,000.00 | 34,185.70 | 299,066.50 | ||||||||||||
3 | 299,066.50 | 20,000.00 | 35,887.98 | 314,954.48 | ||||||||||||
4 | 314,954.48 | 20,000.00 | 37,794.54 | 332,749.01 | ||||||||||||
5 | 332,749.01 | 20,000.00 | 39,929.88 | 352,678.89 | ||||||||||||
6 | 352,678.89 | 20,000.00 | 42,321.47 | 375,000.36 | ||||||||||||
7 | 375,000.36 | 20,000.00 | 45,000.04 | 400,000.40 | Rounding of $0.40. | |||||||||||
Total | 140,000.00 | 267,785.40 | ||||||||||||||
Journal entries: | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | |||||||||
DR | CR | DR | CR | DR | CR | DR | CR | DR | CR | DR | CR | DR | CR | Total | ||
Cash | 20,000.00 | 20,000.00 | 20,000.00 | 20,000.00 | 20,000.00 | 20,000.00 | 20,000.00 | 140,000.00 | ||||||||
Discount amortization | 12,665.80 | 14,185.70 | 15,887.98 | 17,794.54 | 19,929.88 | 22,321.47 | 25,000.04 | 127,785.40 | ||||||||
Interest revenue | 32,665.80 | 34,185.70 | 35,887.98 | 37,794.54 | 39,929.88 | 42,321.47 | 45,000.04 | 267,785.40 |
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