Question

FULL SCREEN PRINTER VERSION OK Exercise 14-6 Spencer Company sells 10% bonds having a maturity value of £3,000,000 for £2,783,724. The bonds are dated January 1, 2015, and mature January 1, 2020. Interest is payable annually on January 1. Set up a schedule of interest expense and discount amortization. (Hint: The effective-interest rate must be computed.) (Round answers to 2 decimal places, e.g. 5,275.20. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Hint: Use tables in Chapter 6. Schedule of Discount Amortization Effective-Interest Method Carrying Year Cash Pald Interest Expense Discount Amortized Amount of Bonds Jan 1, 2015 Dec 31, 2015 Dec. 31, 2016 Dec 31, 2017 Dec 31, 2018 Dec. 31, 2019 353,554.78 "RO ded By accessing this Question Assistance, you will learn while you earn points based on the Point Potential Policy set by your instructor cy Policy I 2000-2020 John Wiley & Sons, Inc. All Rights Reserved. A Division of the Wiley Sons Inc. MacBook Air

Answer 1

Hi Firstly We need to Calculate the Effective rate of Return from the Data given in the Question

For that purpose we need to follow the below mentioned steps:

Step -01 Computation of Annual Cash Flow Face Value of Bond (A) Bond Interest Rate (B) Cash Paid Annually (AXB) 3000000 10% 300000 Step-02 Computation of Discount to be Amortise in the year ended 31 Dec 2019 Interest Expense (Given) for Year ended 31 Dec 2019 353554.78 Less: Cash Paid in Year 2019 300000 Amount of Discount to be Amortise in Year 2019 53554.78 Step-03 Computation of Closing Value of Bond as on 31 Dec 2018 Closing Value of Bond as on 31 Dec 2019 Less: Amount of Discount to be amortise in year 2019 Closing Value of Bond as on 31 Dec 2018 3000000 53554.78 2946445.22 Step-04 Computation of Market Rate of Return/ Effective Rate of Return Closing Value of Bond as on 31 Dec 2018 (A) 2946445.22 Interest Expense for the year (Given In Question) (B) 353554.78) Market Rate of Return/ Effective Rate of Return (B/A 11.99937%

Once we have Calculated the Effective rate of Return then we will calculate the Questions Missing Fields

Year (A) Cash Paid (Face value of Bond X Interest Rate) Schedule of Discount Amortisation Effective Interest Method (D) (B) Una mortised Interest Expense (C) Discount (Carrying Amount Discount =(Total Discount to at the Year Amortise be Amortise - Starting X (B-A) Discount already Effective Rate of amortise in Current Return) Year) 216276.00 334046.88 34046.88 182229.12 3381 32.51 38132.51 144096.61 342708.41 42708.41 101388.21 347833.42 47833.42 5355 4.79 353573.42 53573.42 0.00 (E) Carring amount of Bonds (Total Face Value of Bond Less Unamortised Discount 01-Jan-15 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 31-Dec-19 300000.00 300000.00 300000.00 300000.00 300000.00 2783724.00 2817770.88 2855903.39 2898611.79 2946445.21 3000000.00

*All the Value figure mentioned is in Euro (€)

** Rounded