Reference no: EM133168990

Question - How do I calculate the annual effective interest rate for both sold at discount and sold at premium?

I. Bonds sold at a discount

Issue date 5/1/13

Years to maturity 5

Interest paid Each 5/1

Nominal rate 4% annual

Face amount $100,000

Sale price $98,000

Required -

1. Calculate the annual effective interest rate.

2. Provide an amortization table covering the 5 years of the bonds life.

3. Provide journal entries for issuance, interest accrual on 12/31/13, 1/1/14 reversing entry and 5/1/14 interest payment.

4. Show December 31, 2013, balance sheet amounts for the bonds and related interest under the captions, current liabilities and long term liabilities.

II. Bonds sold at a premium

Issue date 5/1/13

Years to maturity 5

Interest paid Each 5/1

Nominal rate 4% annual

Face amount $100,000

Sale price $101,000

Required -

1. Calculate the annual effective interest rate.

2. Provide an amortization table covering the 5 years of the bonds life.

3. Provide journal entries for issuance, interest accrual on 12/31/13, 1/1/14 reversing entry and 5/1/14 interest payment.

4. Show December 31, 2013 balance sheet amounts for the bonds and related interest under the captions, current liabilities and long term liabilities.