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Unformatted text preview: he difference between face or stated interest and market interest) determines whether the
bond was issued at a premium or discount and the amount of that premium or discount. In the “Bonds –
Premium” and “Bonds – Discount” worksheets formulas have been kept to an absolute minimum to
closely correlate to the textbook presentation. Because of this, the worksheet will only present properly if
the proper worksheet is utilized for the data. Contained on each worksheet, off to the right, is also
straightline amortization of the premium or discount on that issue. With the power of worksheets
available on the desktop system effective interest amortization computation is almost as easy as straightline amortization – except that because of the varying amount per period for effective interest method the
journal entry cannot effectively be memorized.
If you look at the “Bond – Premium” worksheet, which is structured to accept semiannual interest
payments only to limit the use of formulas, you can see how the “PV” (Present value) formulas were
utilized to determine the present value of the issue. In rows 17 through 19 the journal entry for the
issuance of the bond is shown. In cell B24 you can enter the period of interest and see the journal entry
for that period. This is done through “Vlookup” formulas in cells E24 through F26. “Vlookup” formulas
are discussed elsewhere in the text. Since formulas are minimized and the worksheet is structured to take
up to 40 years or 80 periods, look at the results of the matrix when the term of the bond is 40 years. Then
change the term to a value like 10 years and the worksheet matrix “gets messy” and you have problems
finding the end of the data. Then change to premium interest rates to discount interest rates – face value
below market value, and look at the matrix and the journal entries. This same structure and problem exists
in the “Bonds – Discount” worksheet because of the rigidity of the formulas – two, three, or four values
and only one process....
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 Fall '10
 Ullmann
 Accounting

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