Question

On January 1, 2013, Surreal Manufacturing issued 780 bonds, each with a face value of $1,000, a stated interest rate of 3.75 percent paid annually on December 31, and a maturity date of December 31, 2015. On the issue date, the market interest rate was 4.00 percent, so the total proceeds from the bond issue were $774,591. Surreal uses the effective-interest bond amortization method. Required: 1. Prepare a bond amortization schedule. (Round your final answers to the nearest whole dollar.) Changes During the Period Ending Bond Liability Balances Period Ended Interest Expense Cash Paid Discount Amortized Bonds Payable Discount on Bonds Payable Carrying Value 01/01/13 12/31/13 12/31/14 12/31/15 2. Prepare the journal entry to record the bond issue. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the bond issue. Note: Enter debits before credits. General Journal Debit Credit Date Jan 01, 2013 Record entry Clear entry View general journal

Answer 1

Solution:

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-13				$780,000	$5,409	$774,591
31-Dec-13	$30,984	$29,250	$1,734	$780,000	$3,675	$776,325
31-Dec-14	$31,053	$29,250	$1,803	$780,000	$1,872	$778,128
31-Dec-15	$31,122	$29,250	$1,872	$780,000	$0	$780,000

Journal Entries - Surreal Manufacturing
Event	Date	Particulars	Debit	Credit
1	1-Jan-13	Cash Dr	$774,591.00
		Discount on bond payable Dr	$5,409.00
		To Bond Payable		$780,000.00
		(To record issue of bond)
2	31-Dec-13	Interest expense Dr	$30,984.00
		To Cash		$29,250.00
		To Discount on bond payable		$1,734.00
		(To record semiannual interest payment and discount amortization)
3	31-Dec-14	Interest expense Dr	$31,053.00
		To Cash		$29,250.00
		To Discount on bond payable		$1,803.00
		(To record semiannual interest payment and discount amortization)
4	31-Dec-15	Interest expense Dr	$31,122.00
		Bond Payable Dr	$780,000.00
		To Cash		$809,250.00
		To Discount on bond payable		$1,872.00
		(To record interest payment to retiring bond holders)
5	1-Jan-15	Bond Payable Dr	$780,000.00
		Loss on retirement of bond Dr	$9,672.00
		To Discount on bond payable		$1,872.00
		To Cash		$787,800.00
		(To record early retirement of bond)