Clark Company sells 8% bonds having a maturity value of $5,000,000 for $5,421,236. The bonds are dated January 1, 2017, and mature January 1, 2022. Interest is payable annually on January 1. Set up a schedule of interest expense and premium amortization under the effective-interest method. (Hint: The effective interest rate must be computed.)

attached table

Explanation:

We use goal seek of excel to determinate the market rate:

Which is the rate that discounting the coupon payment and maturity matches the 5,421,236 we receive for the bond:

C200,000.000

time10

rate0.030117724

PV$1,705,016.0533

Maturity   5,000,000.00

time   10.00

rate  0.030117724

PV   3,716,219.95

PV c$1,705,016.0533

PV m  $3,716,219.9467

Total$5,421,236.0000

Now, we determiante the schedule by doing as follow:

carrying value x market rate = interest expense

cash outlay per period: face value x coupon rate

the amortization will be the difference

after each payment we adjust the carrying value by subtracting the amortization

the correct answer option is b. a single paragraph.

explanation:

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