Question

Cheyenne Company sells 10% bonds having a maturity value of 52,150,000 for $1.995.003. The bonds are dated January 1, 2017 and mature January 1, 2022. Interest is payable annually on January 1 X Your answer is incorrect. Determine the effective interest rate. (Round answer to decimal places, e.. 18%.) The effective-interest rate e Textbook and Media - Your answer is partially correct. 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 O decimal places. e. 38.548.) Schedule of Discount Amortization Effective-Interest Method Interest Discount Expense Amortized Cash Paid Carrying Amount of Bonds Year 1995003 Jan 1, 2017 $ 2026002 245999 Jan. 1. 2018 215000 30999 215000 245999 Jan 1, 2019 30999 2057002 30999 2088001 Jan 1, 2020 215000 245999 245999 Jan. 1.2021 2119001 215000 30999 30999 2150000 Jan 1, 2022 245999 215000 e Textbook and Media Attempts: 1 of 3 used Save for Later Submit Answer

Answer 1

Face Value = $2,150,000
Issue Value = $1,995,003

Annual Coupon Rate = 10.00%
Annual Coupon = 10.00% * $2,150,000
Annual Coupon = $215,000

Time to Maturity = 5 years

Let Effective Interest Rate be i%

$1,995,003 = $215,000 * PVIFA(i%, 5) + $2,150,000 * PVIF(i%, 5)

Using financial calculator:
N = 5
PV = -1995003
PMT = 215000
FV = 2150000

I = 12%

The effective interest rate is 12%

Year Jan. 01, 2017 Jan. 01, 2018 Jan. 01, 2019 Jan. 01, 2020 Jan. 01, 2021 Jan. 01, 2022 Schedule of Discount Amortization Effective-Interest Method Discount Carrying Amount Cash Paid Interest Expense Amortized of Bonds 1,995,003 215,000$ 239,400 $ 24,400 $ 2,019,403 215,000 $ 242,328$ 27,328 $ 2,046,731 215,000 $ 245,608 $ 30,608$ 2,077,339 215,000 $ 249,281 $ 34,281 $ 2,111,620 215,000 $ 253,380 $ 38,380 $ 2,150,000 $ $ $ $ $