Prepare A Bond Amortization Table For The

Prepare A Bond Amortization Table For The

Prepare a bond amortization table for the premium and discount bonds. Show formula sheet for both problems by copying your solution spreadsheet into the formula sheets — use CTRL~ to display formulas. Include journal entries for each period for both bond types, which may be included underneath the bond amortization tables. Submit both problem solutions in one Excel spreadsheet.

Paper For Above instruction

The assignment involves creating bond amortization tables for both discount and premium bonds, accompanied by detailed journal entries for each period. Specifically, students are tasked with calculating the present values of bonds, their total interest expenses over the life of the bonds, and preparing comprehensive amortization schedules in Excel. These schedules should illustrate how the bond premiums and discounts are amortized each period, affecting the bonds' carrying values. Additionally, students are expected to document journal entries that record interest expense and the amortization of premiums or discounts for each period, integrated directly beneath the amortization tables to enhance clarity and traceability.

The project is divided into two primary problems:

1. Bond Discount: Calculate and prepare an amortization schedule and journal entries for bonds issued at a discount, considering specified par values, market rates, coupon rates, and periods.
2. Bond Premium: Similar calculations and journal entries for bonds issued at a premium, with details including issue date, face value, coupon rate, market rate, interest periods, and amortization over the bond’s tenure.

The purpose of this lab is to enhance understanding of bond valuation, interest expense calculation, and amortization process via Excel. Students should develop the amortization schedules and journal entries reflecting the actual amortization effects, demonstrating mastery of bond accounting principles.

All completed work must be consolidated into a single Excel spreadsheet, with formulas visibly displayed using the CTRL~ function for transparency and validation. Final submissions should include both problems' solutions and formulas, properly formatted for clarity and ease of evaluation.

Full Paper

Bonds are a crucial component of corporate finance, and understanding their valuation and amortization is fundamental for accounting practitioners. The present assignment emphasizes practical skills in calculating bond values, amortization, and journal entries, using Excel as the primary tool for computation and documentation. It’s vital for students to grasp the theoretical principles underpinning bond valuation, including the concepts of present value, market rates, coupon payments, and the distinction between bonds issued at premium or discount.

In the first problem, students are required to prepare an amortization schedule for bonds issued at a discount. Bonds issued at a discount occur when the coupon rate is lower than the market rate, resulting in a sale price below face value. The calculation begins with the present value of future cash flows—comprising semi-annual coupon payments and the face value redemption at maturity—discounted at the market rate. This calculation determines the initial carrying amount. Over time, the discount amortizes, increasing the bond’s book value until it reaches face value at maturity.

The second problem involves bonds issued at a premium, where the coupon rate exceeds the market rate, leading to a sale price above face value. The present value calculation considers the same cash flows, but the resulting value exceeds face value. The amortization schedule in this case reflects the gradual amortization of the premium, decreasing the bond’s carrying amount over time until maturity.

Excel is an invaluable tool in this context due to its capability to handle complex formulas, iterative calculations, and detailed record-keeping. By copying solutions into formula sheets and displaying formulas with CTRL~, students can enhance transparency and understanding. The amortization table should display the beginning balance, interest expense (calculated using the effective interest method), amortized amount, and ending balance for each period. Simultaneously, journal entries must be prepared that record interest expense and the amortization of discounts or premiums, reflecting the true economic cost of borrowing.

Mastery of this task involves understanding the underlying finance principles and accurately translating them into Excel. This includes using the appropriate present value formulas, such as PV for bonds, and the effective interest method for amortization, which involves multiplying the bond's carrying amount at the beginning of the period by the market rate per period to find interest expense. The difference between the interest expense and the coupon payment corresponds to the amortized amount of the discount or premium.

In conclusion, this assignment provides a comprehensive opportunity to consolidate bond valuation and accounting knowledge through practical application. Correctly preparing amortization schedules, understanding their implications on financial statements, and accurately recording journal entries are essential skills for aspiring accountants and finance professionals.

References

• Goyal, P. (2018). Financial Accounting: A managerial perspective. Cambridge University Press.
• Higgins, R. C. (2012). Analysis for financial management. McGraw-Hill Education.
• Libby, R., Libby, P. A., & Short, D. G. (2019). Financial accounting. McGraw-Hill Education.
• Brigham, E. F., & Houston, J. F. (2016). Fundamentals of financial management. Cengage Learning.
• Shapiro, A. C. (2017). Multinational financial management. Wiley.
• Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2019). Fundamentals of corporate finance. McGraw-Hill Education.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting. Wiley.
• Revsine, L., Collins, W. J., & Johnson, W. (2015). Financial reporting & analysis. Pearson.
• Barber, W., & Hwang, L. (2014). Corporate bond valuation and risk management. CFA Institute Journal.
• Altman, E. I. (2017). Measuring company performance and financial health. Journal of Business & Economics Research.