Break into teams and complete the following requirements related to effective interest amortization for a premium bond.
1. Each team member is to independently prepare a blank table with proper headings for amortization of a bond premium. When all have finished, compare tables and ensure that all are in agreement.
Parts 2 and 3 require use of these facts: On January 1, 2010, Caleb issues $100,000, 9%, five-year bonds at 104.1. The market rate at issuance is 8%. Caleb pays interest semiannually on June 30 and December 31.
2. In rotation, each team member must explain how to complete one line of the bond amortization table, including all computations for his or her line. (Round amounts to the nearest dollar.) All members are to fill in their tables during this process. You need not finish the table; stop after all members have explained a line.
3. In rotation, each team member is to identify a separate column of the table and indicate what the final number in that column will be and explain the reasoning.
4. Reach a team consensus as to what the total bond interest expense on this bond issue will be if the bond is not retired before maturity.
5. As a team, prepare a list of similarities and differences between the amortization table just prepared and the amortization table if the bond had been issued at a discount.