On January 1, 2021, Darnell Window and Pane issued $18 million of 10-year, zero-coupon bonds for...

On January 1, 2021, Darnell Window and Pane issued $18 million of 10-year, zero-coupon bonds for $5,795,518. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required: 2. Determine the effective rate of interest. 1. & 3. to 5. Prepare the necessary journal entries

Solutions

Expert Solution

2)Effective rate of Interest : [Face value /issue price] ^1/n -1

[ 18,000,000/ 5,795,518 ]^1/10 -1

= [3.10585]^.10 -1

= 1.12-1

= .12 or 12%

	Date	Account	debit($)	credit($)
1	01-01-2021	Cash	57,95,518
		discount on bond payable	1,22,04,482
		Bond payable		1,80,00,000
		[Being zero coupon bond issued at discount)

3	31-12-2021	Interest Expenses(5795518*12%)	6,95,462
		discount on bond payable		6,95,462

4	31-12-2022	Interest Expenses(64,90,980*12%)	7,78,918
		discount on bond payable		7,78,918

5	31-12-2031	Bond payable	1,80,00,000
		Cash		1,80,00,000

ekkarill92 answered 6 months ago

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