Question

The following amortization and interest schedule reflects the issuance of 10-year bonds by Pronghorn Corporation on January 1, 2014, and the subsequent interest payments and charges. The company's year-end is December 31, and financial statements are prepared once yearly. Amortization Schedule Amount Unamortized Carrying Value Year Interest 1/1/2014 $28,354 $ 222,546 2014 $25,090 $26,706 26,738 224,162 2015 25,090 26,899 24,929 225,971 2016 25,090 27,117 22,902 227,998 2017 25,090 27,360 20,632 230,268 2018 25,090 27,632 18,090 232,810 2019 25,090 27,937 15,243 235,657 2020 25,090 28,279 12,054 238,846 2021 25,090 28,662 8,482 242,418 2022 25,090 29,090 4,482 246,418 2023 25,090 29,572 250,900

Answer 1

a) Bond is issued at discount

b) Effective interest method

c) Stated interest rate = 25090/250900 = 10%

Market rate = 26706/222546 = 12%

d) Journal entry

date	account and explanation	Debit	Credit
Jan 1	Cash	222546
	Discount on bonds payable	28354
	Bonds payable		250900

e) Journal entry

date	account and explanation	Debit	Credit
Dec 31	Interest expense	26706
	Discount on bonds payable		1616
	Interest payable		25090

f) Journal entry

Date	account and explanation	Debit	Credit
Jan 1	Interest payable	25090
	Cash		25090
Dec 31	Interest expense	28662
	Discount on bonds payable		3572
	Interest payable		25090