Exercise 14-7 Marigold Company sels 10% bonds having a maturity value of $2,550,

Question

Exercise 14-7 Marigold Company sels 10% bonds having a maturity value of $2,550,000 for $2,366,166. The bonds are dated January 1, 2017, and mature January 1, 2022. Interest is payable annually on January 1 Determine the effective-interest rate. (Round answer to 0 decimal places, e.g. 18%.) The effective-interest rate Set up a schedule of interest expense and discount amortization under the effective-interest method. (Round intermediate calculations to 6 decimal places, eg. 1.251247 and final answer to 0 decímal places, e.g. 38,548) iscount Amortization Effective-Interest Method Carrying Year Jan 1, 2017s Jan. 1, 2018 an. 1, 2019 an. 1, 2020 an. 1, 2021 an.1, 2022 Paid Expense Amortized Amount of Bonds

Explanation / Answer

Par value of Bonnds 2,550,000 Cash Annual interest 255,000 (2550000*10%) PVF at 12% for 5th year 0.56743 0 Annuity PV factors for 5 yrs at 12% 3.60478 Present value of Maturity amount 1,446,947 Present value of Interest 919,219 Issue price 2,366,165 Hence, The effective interest rate is 12% Req 2. Amortization schedule: Year Cash paid Interest Discount Carrying expense Amortized Value of bonds 01.01.17 183834 2366166 01.01.18 255000 283940 154894 2395106 01.01.19 255000 287413 122481 2427519 01.01.20 255000 291302 86179 2463821 01.01.21 255000 295659 45520 2504480 01.01.22 255000 300520 45520 2550000

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