Prepare a debt amortization schedule for a bond issued at discount

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Prepare a debt amortization schedule for a bond issued at discount

Effective rate method of bond amortization Following are the steps in preparing a bond amortization schedule prepared under effective rate method of bond amortization: Find the opening carrying amount of the bond payable by discounting the bond's cash flows at the market interest rate also known as the effective rate of interest ; Calculate interest payment for the period by multiplying the par value of the bond with the stated interest rate for the period.

Prepare a debt amortization schedule for a bond issued at discount

Calculate interest expense for the period by multiplying the opening carrying amount with the effective rate of interest for the period; Find the amortization of discount or premium for the period as the difference between the interest expense and the interest payment. Find the closing carrying amount of the bond payable.

In case of amortization of discount, add the amortization for the period to the opening carrying amount of the bond. In case of amortization of premium, subtract the amortization for the period from the opening carrying amount of the bond. Straight-line method of bond amortization Following are the steps in preparing a bond amortization schedule prepared under straight-line method of bond amortization: Find the opening carrying amount of the bond payable the same as in effective rate of interest method; Find the amortization of discount or premium for the period by dividing the total discount or premium by the number of periods.

Calculate interest payment for the period by multiplying the par value of the bond with the stated interest rate for the period. Calculate interest expense for the period. In case of amortization of discount, find the interest expense for the period by adding the amortization to the interest payment.

In case of amortization of premium, find the interest expense for the period by subtracting the amortization from the interest payment for the period.Issuance and Repayment of Long Term Debt.

Straight-line method of bond amortization

Bond Discount 10, Cr. 3X Other Financing Source – Bond Proceeds $6,, 1. Sample Entry #2: The interest paid on most debt issued by state and local governments is not subject to federal income tax.

As a result, purchasers of this type of debt are willing to accept a. Amortization Calculation Formula. by Jon Wittwer, revised 11/11/ Calculations in an Amortization Schedule. Budget Financial Modeling Excel Financial Functions Simple Interest Amortization Formulas Amortization Calculation Negative Amortization Debt Consolidation Growth Rate CAGR Calculator & Formula Discount Factors Depreciation NPV.

Bond Discount with Straight-Line Amortization When a corporation is preparing a bond to be issued/sold to investors, it may have to anticipate the interest rate to . Prepare a debt amortization schedule for a bond issued at discount. Assume that the bond matures in 12 years with market interest rate at time of issue% annually .

E Amortization schedule—straight-line. Simple 15–20 Questions Chapter 14 (Continued) 7. Bond discount and bond premium may be amortized on a straight-line basis or on an effective-interest basis. The profession recommends the effective-interest method but permits the straight- bonds are issued or a reduction of the related debt.

A bond discount is a hidden cost to the bond issuer, considering that it must later pay back investors more than it receives from them. There are two basic methods of bond discount amortization: the straight-line amortization and the effective-interest-rate amortization.

Amortization and Accretion