Simulation 5

Using the attached template to build an Excel spreadsheet for a purchase of $1,000,000 face value, 6% 5-year bond with interest payments every 6 months. Market interest rate is 5%. Include the following items:

Inputs:

Bond initial purchase amount

Stated Interest Rate

Maturity in Years

Number of payments/year

Market interest rate

Calculations section 1:

Fair value with separate calculations for interest and principal

Discount or premium

Record the journal entry required when the bonds are purchased.

Calculations Section 2:

Amortization schedule for each interest received (investment revenue). Use the general ledger accounts of cash, discount or premium, bonds payable and interest expense. (Similar to illustration 12-2)

Set up the spreadsheet consistent with journal entries necessary to record each interest received and related amortization. Also show the remaining principal and discount/premium at each interest receipt. NOTE: At the end of the bond investment term, the discount/premium account should be zero. Make sure you use as many formula as possible in the Excel spreadsheet so that your spread sheet can accommodate automatically to any inputs you enter.