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katiedid
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Joined: 23 Jun 2006
Location: United States
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Posted: 23 Jun 2006 at 11:04 \| IP Logged

Can anyone help me with this problem?

Trade Date: 12/31/2003 Coupon: 6.2 Maturity: 12/31/2013

Yield: 5.44 Price: 101.772

Show the adjusting entry to record amorthization of the bond premium on December 2004. ( Use the straight-line method).

uclaextension
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Posted: 30 Jun 2006 at 18:13 \| IP Logged

you have to do an amortization table.

the carrying value is derived from the price and face value.

the interest expense is carrying value times price, each month.

the interest payment is coupon time face value

amortization is the difference between interest expense and interest paid.

kauditor
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Joined: 21 Jun 2007
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Posted: 21 Jun 2007 at 08:55 \| IP Logged

To make it clear:

You should construct a table, and then calculate the interest expense for each period.. You would realize a pattern similar to sum-of-digit amortization method.

Straight Line method is not allowed. There is software in the market in helping you calculating the effective interest expense

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