Question

On January 1, 2018, 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, 2020. 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 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 103. Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 to 5 Prepare a bond amortization schedule. (Round your answers to the nearest whole dollar. Make sure that the Carrying value equals face value of the bond in the last period. Interest expense in the last period will result in the amount in Discount Amortized equaling Discount on Bonds Payable.) Changes During the Period Ending Bond Liability Balances Period Interest Discount Cash Paid Discount on Bonds Payable Ended Carrying Value Expense Amortized Bonds Payable 01/01/18 $ 12/31/18 0 0 12/31/19 12/31/20

Answer 1

Solution 1:
Period	Changes during the period	Ending bond liability balances
Interest expense	Cash Paid	Discount Amortized	Bond payable	Discount on bond payable	Carrying value
1-Jan-18				$530,000	$14,706	$515,294
31-Dec-18	$20,612	$15,900	$4,712	$530,000	$9,994	$520,006
31-Dec-19	$20,800	$15,900	$4,900	$530,000	$5,094	$524,906
31-Dec-20	$20,994	$15,900	$5,094	$530,000	$0	$530,000

Solution 2 to 5:
Journal Entries - Surreal Manufacturing
Event	Date	Particulars	Debit	Credit
1	1-Jan-18	Cash Dr	$515,294.00
		Discount on issue of bond Dr	$14,706.00
		To Bond Payable		$530,000.00
		(To record issue of bond)
2	31-Dec-18	Interest expense Dr	$20,612.00
		To Cash		$15,900.00
		To Discount on issue of bond		$4,712.00
		(To record semiannual interest payment and discount amortization)
3	31-Dec-19	Interest expense Dr	$20,800.00
		To Cash		$15,900.00
		To Discount on issue of bond		$4,900.00
		(To record semiannual interest payment and discount amortization)
4	31-Dec-20	Interest expense Dr	$20,994.00
		Bond Payable Dr	$530,000.00
		To Cash		$545,900.00
		To Discount on issue of bond		$5,094.00
		(To record interest payment to retiring bond holders)
5	1-Jan-20	Bond Payable Dr	$530,000.00
		Loss on retirement of bond Dr	$20,994.00
		To Discount on issue of bond		$5,094.00
		To Cash		$545,900.00
		(To record early retirement of bond)