On January 1, 2021, Darnell Window and Pane issued $18 million
of 10-year, zero-coupon bonds for...
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Accounting
On January 1, 2021, Darnell Window and Pane issued $18 millionof 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 $1) (Use appropriatefactor(s) from the tables provided.)
Required: 2. Determine the effective rate of interest. 1. &3. to 5. Prepare the necessary journal entries
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4.4 Ratings (780 Votes)
2)Effective rate of Interest : [Face value /issue price]
^1/n -1
[ 18,000,000/ 5,795,518
]^1/10 -1
= [3.10585]^.10 -1
= 1.12-1
= .12 or 12%
Date
Account
debit($)
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
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