Question

# Waterway Company sells 10% bonds having a maturity value of \$2,200,000 for \$2,118,688. The bonds are...

Waterway Company sells 10% bonds having a maturity value of \$2,200,000 for \$2,118,688. The bonds are dated January 1, 2017, and mature January 1, 2022. 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
10
%

Set up a schedule of interest expense and discount amortization under the effective-interest method. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548.)

Schedule of Discount Amortization
Effective-Interest Method

Year
Cash
Paid
Interest
Expense
Discount
Amortized
Carrying
Amount of Bonds
Jan. 1, 2017       \$
\$
\$
\$
Jan. 1, 2018

Jan. 1, 2019

Jan. 1, 2020

Jan. 1, 2021

Jan. 1, 2022

 where i=11% t =5 years principal 2,200,000 *59345 1305590 interest 220,000 *3.69590 813098 2118688 thus effective interest rate = 11% answer year cash interest Discount Carrying paid expense amortized value 10% 11% 1/1/2017 2118688 1/1/2018 220000 233056 13056 2131744 1/1/2019 220000 234492 14492 2146235 1/1/2020 220000 236086 16086 2162321 1/1/2021 220000 237855 17855 2180177 1/1/2022 220000 239823 19823 2200000

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