Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Can you please help solve the formula portions and show the formulas used? PROBLEM DATA The University Club recently issued $1,500,000 of 10-year, 9% bonds

Can you please help solve the formula portions and show the formulas used?

PROBLEM DATA

The University Club recently issued $1,500,000 of 10-year, 9% bonds at an effective interest rate of 10%. Bond interest is payable annually.

REQUIREMENTS

1. You have been asked to calculate the issuance price of the bonds and prepare amortization schedules for any discount or premium. The worksheet BONDS has been provided to assist you. Note that the worksheet contains a scratch pad at the bottom that has been preprogrammed to automatically compute and display the relevant cash flows needed for bond pricing.

2. The bond pricing formula will utilize the NPV (Net Present Value) function on your spreadsheet program. The NPV function will automatically compute the net present value of annual future cash flows discounted at a specific interest rate. The interest rate should be expressed as a cell address.

BONDS
Bond Pricing and Amortization
Data Section
Face value of bond $1,500,000
Years to maturity * 10
Stated interest rate 9.0%
Effective interest rate 10.0%
* Worksheet is designed for use with bonds having a maturity of
12 years or less and paying interest annually.
Answer Section
Bond issue price FORMULA1
Amortization Schedule - Straight Line Method
Cash Interest (Disc.) Bond
Year Paid Amortization Expense Premium Carrying Value
0 FORMULA2 FORMULA3
1 FORMULA4 FORMULA5 FORMULA6 FORMULA7 FORMULA8
2 FORMULA9 FORMULA10 FORMULA11 FORMULA12 FORMULA13
3 0 0 0 0 0
4 0 0 0 0 0
5 0 0 0 0 0
6 0 0 0 0 0
7 0 0 0 0 0
8 0 0 0 0 0
9 0 0 0 0 0
10 0 0 0 0 0
11 0 0 0 0 0
12 0 0 0 0 0
Amortization Schedule - Effective Interest Method
Interest Cash (Disc.) Bond
Year Expense Paid Amortization Premium Carrying Value
0 FORMULA14 FORMULA15
1 FORMULA16 FORMULA17 FORMULA18 FORMULA19 FORMULA20
2 FORMULA21 FORMULA22 FORMULA23 FORMULA24 FORMULA25
3 0 0 0 0 0
4 0 0 0 0 0
5 0 0 0 0 0
6 0 0 0 0 0
7 0 0 0 0 0
8 0 0 0 0 0
9 0 0 0 0 0
10 0 0 0 0 0
11 0 0 0 0 0
12 0 0 0 0 0
Scratch Pad
Display of relevant cash flows
Annual Bond
Year Interest Maturity
1 135000 0
2 135000 0
3 135000 0
4 135000 0
5 135000 0
6 135000 0
7 135000 0
8 135000 0
9 135000 0
10 135000 1500000
11 0 0
12 0 0

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting

Authors: Warren, Reeve, Duchac

12th Edition

1133952410, 9781133952411, 978-1133952428

More Books

Students also viewed these Accounting questions

Question

=+5 Decide how to share the customer-perceived value.

Answered: 1 week ago