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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

Answer & Explanation Solved by verified expert
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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