George Washington University

Exercise 3 – Another look at a bond amortization schedule: Saul Goodman Inc. issued bonds, for which the CFO created an amortization schedule. Alas, in an encounter with a couple of thugs, a few items in the amortization schedule went missing. The CEO of the company, Saul, needs your help in reconstructing the amortization schedule below: Date Cash Payment Interest expense Amortization Discount/Premium Balance Net book value of the bond 01/01/2016 ? $37,290 12/31/2016 $2,000 $2,610 ? ? ? 12/31/2017 $2,000 ? ? ? ? 12/31/2018 ? ? ? ? ? 12/31/2019 ? ? ? ? $40,000 Required: (a) Was the bond issued at a discount, premium, or par? Explain (b) What was the discount/premium balance on January 1, 2016? (c) What is the face value of the bonds? (d) Based on your answer to (c) and additional information in the table, what is the coupon rate? (e) What was the market interest rate used in creating the amortization schedule? Round to the nearest percent. (f) Fill out the missing values. Round all values to the nearest dollar. (g) Provide all the journal entries Saul Goodman Inc. recorded in 2016.

Exercise 2 – Creating a bond amortization schedule: On January 1, 2017, Walter White Inc. issued bonds with a par value of $80,000 that mature in 4 years. The interest on the bond is paid semi-annually, on June 30 and December 31 of every year. The coupon rate is 14%. The market interest rate for similar bonds is 12%. Required: Fill out the amortization schedule below. Round values to the nearest dollar. Period Cash interest payment Interest expense Amortization Discount/Premium balance Net book value of bond 0: 01/01/2017 1: 06/30/2017 2: 12/31/2017 3: 06/30/2018 4: 12/31/2018 5: 06/30/2019 6: 12/31/2019 7: 06/30/2020 8: 12/31/2020

On January 1, 2023, James Bond Inc. issued bonds with a par value of $1,000,000 that mature in 2 years. The interest on the bond is paid quarterly, on March 31, June 30, September 30, and December 31 of every year. The coupon rate is 6%. The market interest rate for similar bonds is 8%. Required: Create the amortization table for the bond.