intermediate accounting

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Chapter14TermLoanwithDiscountDemoNoSolution.xlsx
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Sheet1

Example 14.5: JN Min Corporation, a calendar-year company, borrowed $1,000,000 on August 15, 2015. The note specifies an 8% interest rate and is due in three years. Interest is paid quarterly. The fiscal year ends on December 31. The current market rate is 12%. Interest is compounded quarterly. JN Min prepares quarterly financial statements. Prepare the amortization table for the note and the journal entries for 2015.
When we issue this notes payable, we promise to pay:
(1) Cash Interest every quarter = Face Value of the Notes Payable x Qaurterly stated rate
(2) Principal of $1,000,000 at the end of the 3rd year
Every Quarter we will pay cash interest
Annual Market Interest Rate Quarterly Market Interest Rate
12%
Annual Stated Interest Rate Quarterly Stated Interest Rate FV
8%
Years Number of Quarters
3
Face Value of the Notes Payable
The notes payable is issued at a discount of
Present Value of the Notes Payable = Face Value - Present Value of the Notes Payable
= Prior Carrying Value x Quarterly Market Interest Rate
Period Date Cash Interest Effective Interest Discount Amortized Carrying Value (Prior CV + Discount amortized)
0 8/15/15 Initial CV = PV of the Notes Payable
1 11/15/15
2 2/15/16
3 5/15/16
4 8/15/16
5 11/15/16
6 2/15/17
7 5/15/17
8 8/15/17
9 11/15/17
10 2/15/18
11 5/15/18
12 8/15/18 = Face Value