Preparing a Bond Amortization Table (Effective Interest Rate)}

Dunn-Whitaker Construction has agreed to construct a plant in a new industrial park. To finance the construction, the municipal government issued \(\$ 4,000,000\) of 10 -year, \(5.25 \%\) bonds for \(\$ 4,100,000\) on December 31, 2018. Dunn-Whitaker will pay the interest and principal on the bonds. When the bonds are repaid, Dunn-Whitaker will receive title to the plant. In the interim, Dunn-Whitaker will pay property taxes as if it owned the plant. This financing arrangement is attractive to Dunn-Whitaker, as municipal government bonds carry a low interest rate. The bonds are attractive to investors, as both Dunn-Whitaker and the municipal government are issuers. The bonds pay interest semiannually on June 30 and December 31.

\section*{Required:}

1. Prepare an amortization table through December 31, 2020, for these revenue bonds assuming effective interest rate method amortization.

2. CONCEPTUAL CONNECTION Discuss whether or not Dunn-Whitaker should record the plant as an asset after it is constructed.

3. CONCEPTUAL CONNECTION Discuss whether or not Dunn-Whitaker should record the liability for these bonds.

\section*{Problem