On January 1, 2018, Surreal Manufacturing issued 550 bonds, each with a face value of $1,000, a stated interest rate of 3 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 4 percent, so the total proceeds from the bond issue were $534,739. Surreal uses the simplified effective-interest bond amortization method and adjusts for any rounding errors when recording interest in the final year. Required: 1. Prepare a bond amortization schedule. 2-5. Prepare the journal entries to record the bond issue, the interest payments on December 31, 2018 and 2019, the interest and face value payment on December 31, 2020 and the bond retirement. Assume the bonds are retired on January 1, 2020, at a price of 101.
On January 1, 2018, Surreal Manufacturing issued 550 bonds, each with a face value of $1,000, a stated interest rate of 3 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 4 percent, so the total proceeds from the bond issue were $534,739. Surreal uses the simplified effective-interest bond amortization method and adjusts for any rounding errors when recording interest in the final year. Required: 1. Prepare a bond amortization schedule. 2-5. Prepare the journal entries to record the bond issue, the interest payments on December 31, 2018 and 2019, the interest and face value payment on December 31, 2020 and the bond retirement. Assume the bonds are retired on January 1, 2020, at a price of 101.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
On January 1, 2018, Surreal Manufacturing issued 550 bonds, each with a face value of $1,000, a stated interest rate of 3 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 4 percent, so the total proceeds from the bond issue were $534,739. Surreal uses the simplified effective-interest bond amortization method and adjusts for any rounding errors when recording interest in the final year.
Transcribed Image Text:On January 1, 2018, Surreal Manufacturing issued 550 bonds, each with a face value of $1,000, a stated interest rate of 3 percent paid
annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 4 percent, so the
total proceeds from the bond issue were $534,739. Surreal uses the simplified effective-interest bond amortization method and adjusts
for any rounding errors when recording interest in the final year.
Required:
1. Prepare a bond amortization schedule.
2-5. Prepare the journal entries to record the bond issue, the interest payments on December 31, 2018 and 2019, the interest and face
value payment on December 31, 2020 and the bond retirement. Assume the bonds are retired on January 1, 2020, at a price of
101.
Complete this question by entering your answers in the tabs below.
Req 1
Req 2 to 5
Prepare a bond amortization schedule. (Do not round intermediate calculations. Round your answers to the nearest whole
dollar. Make sure that the Carrying value equals to face value of the bond in the last period. Interest expense in the last
period should be calculated as Cash Interest (+)/(-) Reduction in Bonds Payable, Net.)
Beginning of
Year
Changes During the Period
End of Year
Increase in Bonds
Payable, Net
Bonds
Interest
Bonds
Period
Cash Paid
Payable, Net
Expense
Payable, Net
01/01/18 - 12/31/18
$
2$
01/01/19 - 12/31/19
01/01/20 - 12/31/20
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