Eagles Auto invested in bonds of ABC., which it intends to hold until maturity 1/1/22. These 5-year bonds were dated 1/1/17, had a face value of $75,000, and pay 4% interest annually on 12/31. Eagles purchased these bonds when the market rate of interest was 3%. Complete the entire amortization table for this investment and record all entries for the life of the investment

What will be an ideal response?

Answer: Cost of the investment calculated using Excel Present Value function with the following inputs:
N - 5
I/Y - 3%
PMT - $3,000 ($75,000 × .04)
FV - $75,000

Excel function: =PV(.03,5,3000,75000) = $78,435

Investment Amortization Table:

Cash Effective Premium Amortized
Date Interest Interest Amortization Cost .
1/1/17 78,435
12/31/17 3,000 2,353 647 77,788
12/31/18 3,000 2,334 666 77,122
12/31/19 3,000 2,314 686 76,435
12/31/20 3,000 2,293 707 75,728
12/31/21 3,000 2,272 728 75,000

Journal Entries:
1/1/17 Held-to-Maturity Debt Investment - ABC Bonds 78,435
Cash 78,435

12/31/17 Cash 3,000
Held-to-Maturity Debt Investment - ABC Bonds 647
Interest Revenue 2,353

12/31/18 Cash 3,000
Held-to-Maturity Debt Investment - ABC Bonds 666
Interest Revenue 2,334

12/31/19 Cash 3,000
Held-to-Maturity Debt Investment - ABC Bonds 686
Interest Revenue 2,314

12/31/20 Cash 3,000
Held-to-Maturity Debt Investment - ABC Bonds 707
Interest Revenue 2,293

12/31/21 Cash 3,000
Held-to-Maturity Debt Investment - ABC Bonds 728
Interest Revenue 2,272

1/1/22 Cash 75,000
Held-to-Maturity Debt Investment - ABC Bonds 75,000