(Amortization Schedule—Effective-Interest) Assume the same information as E14-6.

Instructions

Set up a schedule of interest expense and discount amortization under the effective-interest method. (Hint: The effective-interest rate must be computed.)

Date

Cash interest paid at stated rate on bond payable (10%)

Interest expenses at market rate on book value of bonds (12%)

Discount amortized

Unamortized discount

Bond payable

Book value

1 Jan 2017

$144,184

$2,000,000

$1,855,816

1 Jan 2018

$200,000

$222,698

$22,698

$121,486

$2,000,000

$1,878,514

1 Jan 2019

$200,000

$225,422

$25,422

$96,064

$2,000,000

$1,974,578

1 Jan 2020

$200,000

$236,949

$36,949

$59,115

$2,000,000

$2,033,693

1 Jan 2021

$200,000

$244,043

$44,043

$15,072

$2,000,000

$2,015,072

1 Jan 2022

$200,000

$241,809

$41,809

$0

$2,000,000

$200,000

Particular

Amount $

Present value of the bonds payable $2,000,000 (n=5, r=11%) (0.5935)

$1,187,000

Present value of the interest $200,000 (n=5, r=11%) (3.70)

740,000

Total present value

$1,927,000

Particular

Amount $

Present value of the bonds payable $2,000,000 (n=5, r=12%) (0.5674)

$1,134,800

Present value of the interest $200,000 (n=5, r=12%) (3.605)

721,000

Total present value

$1,855,800