Question

Ayayai Company sells 9% bonds having a maturity value of $1,750,000 for $1,560,756. The bonds are dated January 1, 2017, and mature January 1, 2022. Interest is payable annually on January 1. Determ ine the effective-interest rate. (Round answer to 0 decimal places, eg. i896.) The effective-interest rate LINK TO TEXT Set up a schedule of interest expense and discount amortization under the effective-interest method. (Round intermediate calculations to 6 decimal places, e.g.1.251247 and final answer to 0 decimal places, e.g 38,548.) Schedule of Discount Amortization Effective-Interest Method Cash Paid Interest Expense Discount Amortized Carrying Amount of Bonds Year Jan. 1, 2017 Jan. 1, 2018 Jan. 1, 2019 Jan. 1, 2020 Jan. 1, 2021 Jan. 1, 2022

Please explain detail

Answer 1

Face value of bonds- $1,750,000 Current price of bonds-S1,560,756 Term - Jan 1, 2017 to Jan 1,2022 - 5 Years Coupon rate - 9% Coupon amount (Cash interest)-Face value * Coupon rate-$1.750.000 * 9% $157,500 Effective interest rate of bond Y M = [Coupon amount Maturity value-Current price) Term ] / [ 0.6 * Current price + 0.4 * Maturity value ] = [$157,500+ ($1.750,000-$1,560.756) 15 ] / [ 0.6 * $1,560.7564 0.4 * $1.750.000 ] - S195.348.8 / $1.636,453.6 - 0.119373259 11.9373259% 12% (Rounded) = Schedule of discount amortization (Effective interest method Year Cash paidInterest expen 1-Jan-17 1-Jan-18S157,500S187,290.72 1-Jan-19 $157,500 $190,865.61 1-Jan-20 S157,500 S194,869.48 1-Jan-21 S157,500S199,353.82 1-Jan-22 S157,500 S204,364.38 ses Discount amortized C amount of bonds S29,790.72 S33.365.61 $37,369.48 S41,853.82 $46,864.38 $1,560,756 $1,590,546.72 $1,623,912.33 $1,661.281.81 $1,703,135.62 $1,750,000.00 Note: Interest expensesCarrying amount of bonds Effective interest rate Discount amortized- Interest expenses - Cash interest paid