Question

Cheyenne Company sells 8% bonds having a maturity value of $2,400,000 for $2,218,040. 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

Answer 1

The effective-interest rate		10%
Year	Interest Payable	Interest Expense	Discount Amortized	Carrying Amount of Bonds
Jan. 1, 2020				2,218,040
Dec. 31, 2020	192,000	221,804	29,804	2,247,844
Dec. 31, 2021	192,000	224,784	32,784	2,280,628
Dec. 31, 2022	192,000	228,063	36,063	2,316,691
Dec. 31, 2023	192,000	231,669	39,669	2,356,360
Dec. 31, 2024	192,000	235,640	43,640	2,400,000
Interest Payable
(2,400,000 x 8%)
Interest Expense
(2,218,040 x 10%)
Discount Amortized
(Interest Expense - Interest Payable)