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On January 1, 2021, Darnell Window and Pane issued $18
On January 1, 2021, Darnell Window and Pane issued $18.5 million of 10-year, zero-coupon bonds for $6,515,413. (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.
Interest rate
%
- Record the issuance of the bonds.
Note: Enter debits before credits.
DateGeneral JournalDebitCreditJanuary 01, 2021
- Record annual interest expense at December 31, 2021.
Note: Enter debits before credits.
DateGeneral JournalDebitCreditDecember 31, 2021
- Record annual interest expense at December 31, 2022.
Note: Enter debits before credits.
DateGeneral JournalDebitCreditDecember 31, 2022
- Record the payment at the bonds' maturity.
Note: Enter debits before credits.
DateGeneral JournalDebitCreditDecember 31, 2030
Expert Solution
Computation of Effective Rate of Interest:
Effective Rate of Interest = (Face Value /Issue Price) ^1/n -1
= ($18,500,000/ $6,515,413)^1/10 - 1
= 2.8394^1/10 - 1
= 1.11 - 1
Effective Rate of Interest = 0.11 or 11%
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