Question

Teal Company sells 8% bonds having a maturity value of $3,000,000 for $2,772,550. The bonds are dated January 1, 2020, and mature January 1, 2025. 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

%

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Set up a schedule of interest expense and discount amortization under the effective-interest method. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 38,548.)

Schedule of Discount Amortization Effective-Interest Method
Year		Interest Payable		Interest Expense		Discount Amortized		Carrying Amount of Bonds
Jan. 1, 2020		$		$		$		$
Dec. 31, 2020
Dec. 31, 2021
Dec. 31, 2022
Dec. 31, 2023
Dec. 31, 2024

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Answer 1

Answer is attached below

Answer Schedule of Discount Amortization Year Interest Interest Payable Expense Jan 1, 2020 Dec 31, 2020 Dec 31, 2021 Dec 31, 2022 Dec 31, 2023 Dec 31, 2024 240,000 240,000 240,000 240,000 240,000 277,255.00 280,980.50 285,078.55 289,586.41 294,549.54 Discount Carrying Amortized Amount of Bonds 2,772,550 37,255.00 2,809,805.00 40,980.50 2,850,785.50 45,078.55 2,895,864.05 49,586.41 2,945,450.46 54,549.54 3,000,000.00 Interest Payable = 3,000,000 * 8% 240,000 Discount Amortized = Previous Carrying Value of Bonds * Bond Interest per annum Value of Bond = Annual Interest * PVA (8%, 5 year) + Face Value * PVF (rate, 5 years) 2,772,550 = (240,000 * 3.99271) +3,000,000 * PVF (rate, 5 years) 2,772,550 = 958.250.4 +3,000,000 * PVF (rate, 5 years) PVF (rate, 5 years) (2,772,550 - 958,250.4)/3,000,000 Effective Interest = 10% Interest Expense= Carrying value of bonds * Effective interest rate