January 1, Year 1 $63,062 - Balance End of Year 1 $4340 - Cash $4099 - Interest

Question

January 1, Year 1 $63,062 - Balance End of Year 1 $4340 - Cash $4099 - Interest $241 - Amortization $62821 - Balance End of Year 2 ? ? ? $62564 - Balance End of Year 3 ? ? 273 ? End of Year 4 ? 4,049 ? 62000 - Balance On January 1 of this year, Olive Corporation issued bonds. Interest is payable once a year on December 31. The bonds mature at the end of four years. Olive uses the effective-interest amortization method. The partially completed amortization schedule below pertains to the bonds 4009 Required 1. Complete the amortization schedule. (Enter all your values in positive. Round your final answers to nearest whole dollar amount.) Check my work 2. 2. When the bonds mature at the end of Year 4 what amount of principal will Olive pay investors?

Explanation / Answer

Solution 1:

Refer above amortization schedule for remaining parts:

Solution 2:

Principal amount to be paid to investors on maturity = $62,000

Solution 3:

Cash received on date of issue = $63,062

Solution 4:

Issue price = $63,062

Face value of bond = $62,000

Bond issued at premium and premium amount = $63,062 - $62,000 = $1,062

Solution 5:

Cash disbursed per period = $4,340

Cash disbursed for interest in total = $4,340*4 = $17,360

Solution 6:

Coupon rate = $4,340 / $62,000 = 7%

Solution 7:

Annual market interest rate on bond = $4,099 / $63,062 = 6.50%

Solution 8:

Interest expense reported in

Year 2 = $4,083

Year 3 = $4,067

Solution 9:

Carrying value reported in balance sheet at end of

Year 2 = $62,564

Year 3 = $62,291

Amortization Schedule Period Cash Paid Interest Expense (6.5%) Premium Amortized Carrying value Jan1, Year 1 $63,062 End of Year 1 $4,340 $4,099 $241 $62,821 End of Year 2 $4,340 $4,083 $257 $62,564 End of Year 3 $4,340 $4,067 $273 $62,291 End of Year 4 $4,340 $4,049 $291 $62,000

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