Question

On January 1, 2021, Darnell Window and Pane issued $18.2 million of 10-year, zero-coupon bonds for $6,409,758. FV of $1 PV ofTABLE 1 Future Value of $1 FV = $1(1+i) 20.0% 1.20000 1.44000 ndi 1.0% 1 1.01000 2 1.02010 3 1.03030 4 1.04060 5 1.05101 1.5TABLE 2 Present Value of $1 $1 PV (1+1) wi 1.0% 1 0.99010 2 0.98030 3 0.97059 4 0.96098 5 0.95147 1.5% 0.98522 0.97066 0.956TABLE 3 Future Value of an Ordinary Annuity of $1 EVA_ (1 + i) - 1 ni 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%TABLE 4 Present Value of an ordinary Annuity of $1 1- (+1) PVA== ni 1 2 3 4 5 1.0% 1.5% 0.99010 0.98522 1.97040 1.95588 2.940TABLE 5 Future Value of an Annuity Due of $1 (1+i) -11 FVAD - = *(1+i) wi 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5,5%TABLE 6 Present Value of an Annuity Due of $1 PVAD= |x (1+i) ni 1 2 3 4 5 1.0% 1.00000 1.99010 2.97040 3.94099 4.90197 1.5% 1

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Answer #1

Part 1

Date

General journal

Debit

Credit

January 1, 2021

Cash

6409758

Discount on bonds payable

11790242

Bonds payable

18200000

Part 2

Effective interest rate

11%

6409758/18200000 = 0.35218

In row 10 of PV of $1, the value 0.35218 is in the 11% column. So, this is the effective interest rate.

Part 3

Date

General journal

Debit

Credit

December 31, 2021

Interest expense (6409758*11%)

705073

Discount on bonds payable

Part 4

Date

General journal

Debit

Credit

December 31, 2017

Interest expense ((6409758+705073)*11%)

782631

Discount on bonds payable

782631

Part 5

Date

General journal

Debit

Credit

December 31, 2030

Bonds payable

18200000

Cash

18200000

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