Question

tion and interestedate reflects the ance of so-year boobs by Capult Corporation caja P11.1 (LO 1) Grow (Analysis of Amortization Schedule and Interest Entries) The following mo is December 31, and financial statements are prepared once yearly, 2014, and the w orst interest payments and charge. The company's year end Amortization Schedule Carrying Cash Interest 1L404 11.45 11,000 11.000 11,635 11.000 Instructions a. Indicate whether the bonds were issued at a premium or a discount and how you can determine this fact from the schedule. b. Indicate whether the amortization schedule is based on the straight-line method of the effective interest method, and how you can determine which method is used. c. Determine the stated interest rate and the effective interest rate d. On the basis of the schedule above, prepare the journal entry to record the sunce of the bonds on January 1, 2014 e. On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and access for 2014.(Interest is paita L) 1. On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and as for 2021. Capulet Corporation does not reversing entries

Answer 1

Requirement a:

Bonds are issued at discount.

Carrying value at the end of the bond period is $100,000. This is the face value of the bond.

Carrying value at the beginning of the period is $94,349. This is the issue price of the bond.

Bonds are issued at discount because issue price is less than the face value.

Requirement b:

Amortization schedule based on 'Effective interest method'.

Interest expense is constant in 'Straight-line method'. In the given amortization schedule, interest expense is not constant so, it is effective interest method.

Requirement c:

Standard interest rate = (Cash paid ÷ Face value) x 100 = (11,000/100,000) x 100 = 11%

Effective interest rate = (Interest expense for the period ÷ preceding carrying value) x 100

= (11,322/94,349) x 100

= 12%

Requirement d:

Date	Account title and Explanation	Debit	Credit
1/1/2014	Cash	$94,349
	Discount on bonds payable	$5,651
	Bonds payable		$100,000
	[To record issuance of bonds]

Requirement e:

Date	Account title and Explanation	Debit	Credit
12/31/2014	Interest expense	$11,322
	Discount on bonds payable		$322
	Interest payable		$11,000
	[To record bond amortization and accrued interest expense]

Requirement f:

Date	Account title and Explanation	Debit	Credit
12/31/2021	Interest expense	$11,712
	Discount on bonds payable		$712
	Interest payable		$11,000
	[To record accrued interest expense]