Question

On January 1, 2013, Surreal Manufacturing issued 630 bonds, each with a face value of $1,000, a stated interest rate of 3.50 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 $670,567. 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 Discount on Bonds Carrying Value Payable Period Ended Interest Expense Cash Paid Discount Amortized Bonds Pavable 01/01/13 12/31/13 12/31/14 12/31/15

Answer 1

Period ended	Interest expense [ Carrying value* 4%]	Cash paid [ 680,000*3.5%]	Discount amortized [ Interest - Cash paid]	Bonds payable	Discount on bonds payable	Carrying value
01/01/13				680000	9,433	670,567
12/31/13	26823	23800	3023	680000	6,410	673,590
12/31/14	26944	23800	3144	680000	3,267	676,733
12/31/15	27066	23800	3266	680000	0	680,000

No	Date	Account titles	Debit	Credit
2	Jan 1,2013	Cash	670,567
		Discount on bonds payable	9,433
		Bonds payable		680,000
2	Dec 31,2013	Interest expense	26823
		Discount on bonds payable		3023
		Cash		23800
3	Dec 31,2014	Interest expense	26944
		Discount on bonds payable		3144
		Cash		23800
4	Dec 31,2015	Interest expense	27066
		Discount on bonds payable		3266
		Cash		23800
5	Dec 31,2015	Bonds payable	680,000
		Loss on redemption of bonds	6,800
		Cash		686,800