Devon Harris Company sells 9% bonds having a maturity value of $2,275,000 for $2
ID: 2491594 • Letter: D
Question
Devon Harris Company sells 9% bonds having a maturity value of $2,275,000 for $2,028,982. The bonds are dated January 1, 2014, and mature January 1, 2019. Interest is payable annually on January 1.
Devon Harris Company sells 9% bonds having a maturity value of $2,275,000 for $2,028,982. The bonds are dated January 1, 2014, and mature January 1, 2019. Interest is payable annually on January 1.
Exercise 14-7 Devon Harris Company sells 9% bonds having a maturity value of $2,275,000 for $2,028,982. The bonds are dated January 1, 2014, and mature January 1, 2019. Interest is payable annually on January 1 Determine the effective-interest rate The effective-interest rate Set up a schedule of interest expense and discount amortization under the effective-interest method. (Round answers to 0 decimal places, e.a. 38,548.) Schedule of Discount Amortization Effective-Interest Method Cash Paid Interest Expense Discount Amortized Carrying Amount of Bonds Year Jan. 1, 2014 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2017 Dec. 31, 2018 * Difference due to roundingExplanation / Answer
Ans A Price of the bond = c × F × (1 (1 + r)-t)/r+F(1 + r)t C=Interest Rate F= Face Value r=Market Interest Rate Price of Bond= Present value of Interest payments+Present value of the bond Price of Bond 204750*(1-(1.r)^-5)/.r)+2275000/(1.r)^5 (204750*(1-r)/.r)+2275000*r= 2028982 Effective Interest rate 12.5192% 12.52% rounded off Date Cash=Interest Payment @9% Interest expenses at 12.52%*G Discount Amortization of Bond C-B Unamortized discount Carrying value of Bond F-E Jan 1 2014 246018 2028982 dec 31,2014 204750 254012 49262 196756 2078244 deC 31,2015 204750 260180 55430 141326 2133674 Dec 31,2016 204750 267119 62369 78957 2196043 31-Dec-17 204750 274927 70177 8780 2266220 31-Dec-14 204750 283713 78963 -5 2275005
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