On January 1, 2021, Surreal Manufacturing issued 530 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, 2023. On the issue date, the market interest rate was 4 percent, so the total proceeds from the bond issue were $515,294. 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, 2021 and 2022, the interest and face value payment on December 31, 2023 and the bond retirement. Assume the bonds are retired on January 1, 2023, at a price of 103.
On January 1, 2021, Surreal Manufacturing issued 530 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, 2023. On the issue date, the market interest rate was 4 percent, so the total proceeds from the bond issue were $515,294. 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, 2021 and 2022, the interest and face value payment on December 31, 2023 and the bond retirement. Assume the bonds are retired on January 1, 2023, at a price of 103.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2021, Surreal Manufacturing issued 530 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, 2023. On the issue date, the market interest rate was 4 percent, so the
total proceeds from the bond issue were $515,294. Surreal uses the simplified effective-interest bond amortization method and adjusts
for any rounding errors when recording interest 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, 2021 and 2022, the interest and face
value payment on December 31, 2023 and the bond retirement. Assume the bonds are retired on January 1, 2023, at a price of
103.
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 (+)/(-) Increase in Bonds Payable, Net.)
Period
01/01/21 - 12/31/21
01/01/22 - 12/31/22
01/01/23 - 12/31/23
Beginning of Year
Bonds Payable,
Net
Interest
Expense
Changes During the Period
Cash Paid
Increase in Bonds
Payable, Net
$
0
0
0
End of Year
Bonds
Payable, Net
$
0
0
0
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