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:Chapter 9, Problem 26EA Bookmark Show all steps: Hadley Ltd. is authorized to issue $5,000,000 of 496, 10-year bonds payable. On December 31, 2014, when the market interest rate is 5%, the company issues $4,000,000 of the bonds. Hadley Ltd. amortizes bond discount by the effective-interest method. The semiannual interest dates are June 30 and December 31 Requirements 1. Use the PV function in Excel to calculate the issue price of the bonds. 2. Using Exhibit as a model, prepare a bond amortization table for the term of the bonds. Panel A-Bond Data 1 Issue date-January 1, 2014 Maturity date-January 1, 2019 Market interest rate at time of issue-10% annually, 5% semiannual 2 Face (par or maturity) value-$100,000 3 i stated interest rate-996 Issue price-$96,149 Interest paid-4 1/2% semiannually, $4,500 $100,000 x 0.09 x 6/12 4 Panel B-Amortization Table (Using Excel) Interest Expense (0.05* Preceding Discount Account Balance Amortization (Preceding Bond Carrying Amount Semiannual Discount Interest Int Pmt (0.045Bond ($100,000- E) 96,149 96,456 96,779 97,118 97,474 97,848 98,240 98,652 99,085 99,539 100,000 Date Maturity Value) Carrying Value)C-B) 1/1/2014 7/1/2014 1/1/2015 7/1/2015 1/1/2016 7/1/2016 017 7/1/2017 1/1/2018 7/1/2018 019 3,851 3,544 3,221 2,882 2,526 2,152 307 323 339 4,807 4823 4,839 856 4,874 4,892 4,912 4933 4,954 4,961 4,500 4,500 4 6 374 392 412 1,348 461 461 Adjusted for effect of rounding Notes Column B The semiannual interest payments are constant-fixed by the bond contract. Column C The interest expense each period the preceding bond carrying amount X the market interest rate. Interest expense increases as the bond carying amount (F) increases. Column D The discount amortization (D) is the exxcess of interest expense (C over interest payment (B). 1 Column E The discount balance (E) decreases when amortized. Column F The bond carrying amount (F) increases from $96,149 at issuance to $100,000 at maturity

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