Question

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
%

LINK TO TEXT

  
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      

Answer 1

	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