having difficulty with this problem, I can\'t figure 14-6 out and I\'m also requ
ID: 2548334 • Letter: H
Question
having difficulty with this problem, I can't figure 14-6 out and I'm also required to do 14-7 but I don't know how to get the effective rate. sos
E 14-6 (L01) (Amortization Schedule-Straight-Line) Devon Harris Company sells 10% bonds having a maturity value of $2,000,000 for $1,855,816. The bonds are dated January 1, 2017, and mature January 1, 2022. Interest is payable annually on January 1. Instructions Set up a schedule of interest expense and discount amortization under the straight-line method. (Round answers to the nearest ce E14-7 (LO1) (Amortization Schedule-Effective-Interest) Assume the same information as E14-6 Instructions 785 Set up a schedule of interest expense and discount amortization under the effective-interest method. (Hint: The effective-interest rate must be computed.)Explanation / Answer
Answer: E14-6 Schedule of amortization-Straight Line Method Year Interest Paid at 10% Amortization of discount Interest Expense Carring Value 0 $ 1,855,816.00 1 $ 200,000.00 $ 28,836.80 $ 228,836.80 $ 1,884,652.80 2 $ 200,000.00 $ 28,836.80 $ 228,836.80 $ 1,913,489.60 3 $ 200,000.00 $ 28,836.80 $ 228,836.80 $ 1,942,326.40 4 $ 200,000.00 $ 28,836.80 $ 228,836.80 $ 1,971,163.20 5 $ 200,000.00 $ 28,836.80 $ 228,836.80 $ 2,000,000.00 Where, Amortization of discount (2000000-1855816)/5 $ 28,836.80 Interest Paid =Fave Value of bonds*10% =2,000,000*10% $ 200,000.00 Interest Expense =Interest Paid+Amortization of Discount Carring Value at the end = Carring Value at the beginning+Amortization of discount E14-7 Schedule of interest expense and amortization of discount-Effective interest method Year Interest Paid at 10% of Face Value Interest Expense at 11.9999% of Carring Value Amortization of discount Carring Value 0 $ 1,855,816.00 1 $ 200,000.00 $ 222,695.88 $ 22,695.88 $ 1,878,511.88 2 $ 200,000.00 $ 225,419.36 $ 25,419.36 $ 1,903,931.24 3 $ 200,000.00 $ 228,469.65 $ 28,469.65 $ 1,932,400.89 4 $ 200,000.00 $ 231,885.98 $ 31,885.98 $ 1,964,286.87 5 $ 200,000.00 $ 235,712.26 $ 35,713.12 $ 2,000,000.00 where, Effective Interest Rate Year Cashflow Cell 0 $ 1,855,816.00 B49 1 $ (200,000.00) B50 2 $ (200,000.00) B51 3 $ (200,000.00) B52 4 $ (200,000.00) B53 5 $ (2,200,000.00) B54 Effective interest rate =IRR(B49:B54) 11.99990% Interest Paid =Fave Value of bonds*10% =2,000,000*10% $ 200,000.00 Interest Expense =Carring Value *11.9999% Amortization of discount =Interest Expense -Interest Paid Carring Value at the end = Carring Value at the beginning+Amortization of discount
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.