Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2021. LPC's accountant has projected the following amortization schedule from issuance until maturity: Date Cash interest Effective interest Decrease in balance Outstanding balance 1/1/2021 $ 207,020 6/30/2021 $ 7,000 $ 6,211 $ 789 206,230 12/31/2021 7,000 6,187 813 205,417 6/30/2022 7,000 6,163 837 204,580 12/31/2022 7,000 6,137 863 203,717 6/30/2023 7,000 6,112 888 202,829 12/31/2023 7,000 6,085 915 201,913 6/30/2024 7,000 6,057 943 200,971 12/31/2024 7,000 6,029 971 200,000 What is the annual effective interest rate on the bonds?
Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2021. LPC's accountant has projected the following amortization schedule from issuance until maturity: Date Cash interest Effective interest Decrease in balance Outstanding balance 1/1/2021 $ 207,020 6/30/2021 $ 7,000 $ 6,211 $ 789 206,230 12/31/2021 7,000 6,187 813 205,417 6/30/2022 7,000 6,163 837 204,580 12/31/2022 7,000 6,137 863 203,717 6/30/2023 7,000 6,112 888 202,829 12/31/2023 7,000 6,085 915 201,913 6/30/2024 7,000 6,057 943 200,971 12/31/2024 7,000 6,029 971 200,000 What is the annual effective interest rate on the bonds?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable
Section: Chapter Questions
Problem 9RE
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Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2021. LPC's accountant has projected the following amortization schedule from issuance until maturity:
| Date | Cash interest |
Effective interest |
Decrease in balance |
Outstanding balance |
||||||||
| 1/1/2021 | $ | 207,020 | ||||||||||
| 6/30/2021 | $ | 7,000 | $ | 6,211 | $ | 789 | 206,230 | |||||
| 12/31/2021 | 7,000 | 6,187 | 813 | 205,417 | ||||||||
| 6/30/2022 | 7,000 | 6,163 | 837 | 204,580 | ||||||||
| 12/31/2022 | 7,000 | 6,137 | 863 | 203,717 | ||||||||
| 6/30/2023 | 7,000 | 6,112 | 888 | 202,829 | ||||||||
| 12/31/2023 | 7,000 | 6,085 | 915 | 201,913 | ||||||||
| 6/30/2024 | 7,000 | 6,057 | 943 | 200,971 | ||||||||
| 12/31/2024 | 7,000 | 6,029 | 971 | 200,000 | ||||||||
What is the annual effective interest rate on the bonds?
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