Question

On January 1, 2018, Loop Raceway issued 580 bonds, each with a face value of $1,000, a stated interest rate of 5 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 6 percent, so the total proceeds from the bond issue were $564,485. Loop uses the straight-line 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 98.

Answer 1

Answer:

Face value	5,80,000
issue price	-5,64,485
discount on bonds	15,515

Period	Cash paid	discount amortized(15515/3)	Interest expenses	Bond Payable	Discount on Bonds payable	Carrying value
	A	B	C=A+B	D	E=15515-B	F= D-E
01-01-2018				5,80,000	15,515	5,64,485
12/31/2018	29,000	5,172	34,172	5,80,000	10,343	5,69,657
12/31/2019	29,000	5,172	34,172	5,80,000	5,171	5,74,829
12/31/2020	29,000	5,171	34,171	5,80,000	0	5,80,000

ans 2
Date	Accounts	Debit($)	Credit($)
01-01-2018	Cash	5,64,485
	Discount on Bonds payable	15,515
	Bonds Payable		5,80,000
12/31/2018	Interest expenses	34,172
	Discount on Bonds payable		5,172
	Cash		29,000
12/31/2019	Interest expenses	34,172
	Discount on Bonds payable		5,172
	Cash		29,000
2020	Bonds Payable	5,80,000
	Interest expenses	34,172
	Discount on Bonds payable		5,172
	Cash		6,09,000
	Bonds Payable	5,80,000
5	Gain on retirement of Bonds		6,428
	Discount on Bonds payable		5,172
	Cash (580*980)		5,68,400