On January 1, 2018, Methodical Manufacturing issued 100 bonds, each with a face value of $1,000,...
On January 1, 2018, Methodical Manufacturing issued 100 bonds, each with a face value of $1,000, a stated interest rate of 5 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 4.25 percent, so the total proceeds from the bond issue were $102,070. Methodical uses the 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 entry to record the bond issue, interest payments on December 31, 2018 and 2019, 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 102.
Homework Answers
Requirement 1:
Face Value = 100 * $1,000
Face Value = $100,000
Issue Value = $102,070
Premium on Bonds = Issue Value - Face Value
Premium on Bonds = $102,070 - $100,000
Premium on Bonds = $2,070
Annual Coupon Rate = 5.00%
Annual Coupon = 5.00% * $100,000
Annual Coupon = $5,000
Annual Interest Rate = 4.25%
Requirement 2:
Add Answer to:
On January 1, 2018, Methodical Manufacturing issued 100 bonds,
each with a face value of $1,000,...
On January 1, 2018, Methodical Manufacturing issued 100 bonds, each with a face value of $1,000,...
On January 1, 2018, Methodical Manufacturing issued 100 bonds, each with a face value of $1,000, a stated interest rate of 5 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 4.25 percent, so the total proceeds from the bond issue were $102,070. Methodical uses the effective-interest bond amortization method and adjusts for any rounding errors when recording interest in the final year. Required: 1. Prepare...
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