Question

On January 1, 2018, Surreal Manufacturing issued 660 bonds, each with a face value of $1,000, a stated interest rate of 3 percent pald annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market Interest rate was 4 percent, so the total proceeds from the bond issue were $641,687. Surreal uses the simplified effective-Interest 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 101. Complete this question by entering your answers in the tabs below. Req 1 Reg 2 to 5 Prepare a bond amortization schedule. (Do not round intermediate calculations. Round your answers to the nearest whole dollar. Make sure that the Carrying value equals to face value of the bond in the last period. Interest expense in the last period should be calculated as Cash Interest (+)/(-) Reduction in Bonds Payable, Net.) Beginning of Year Changes During the Period End of Year Period Bonds Payable, Net Interest Expense Cash Paid Increase in Bonds Payable, Net Bonds Payable, Net s S 0 01/01/18 - 12/31/18 01/01/19 - 12/31/19 0 Oo 01/01/20 - 12/31/20 0

Answer 1

B C D E F G H 660,000 0.03 19,800 (Face Value of the Bond * Annual Coupon Rate) 3 0.04 641,687 А 1 Face Value of the Bond 2 Annual Coupon Rate 3 Annual Coupon Payment 4 Period In Years 5 Market Interest Rate 6 Total Proceeds 7 8 9 Period Ended 10 Cash Paid 11 01-Jan-18 12 31-Dec-18 13 31-Dec-19 14 31-Dec-20 Changes During the Period Changes During the Period Discount Amortised Interest Expense Bonds Payable Discount on Bonds Payable Carrying Value 660,000 18,313 641,687 19,800 6,104.33 25,904 660,000 12,209 647,791 19,800 6,104.33 25,904 660,000 6,104 653,896 19,800 6,104.33 25,904 660,000 660,000 15 10 17 Date Debit Credit 19 Particulars 01-Jan-18 Cash Discount on Bonds Payable Bonds Pauable (Being Bonds Issue Recorded 641,687 18,313 19 20 660 000 25,904 21 22 23 24 25 26 27 28 29 31-Dec-18 Interest Expense Discount on Bonds Payable Cash (Being Interest Expenses Recorded) 6.104.33 19,800.00 25,904 31-Dec-19 Interest Expense Discount on Bonds Payable Cash (Being Interest Expenses Recorded! 6,104.33 19,800.00 25.904 30 31 32 33 34 35 36 37 38 39 40 41 42 31-Dec-20 Interest Expense Discount on Bonds Payable Cash (Being Interest Expenses Recorded) 6,104.33 19,800.00 31-Dec-20 Bonds Payable 660,000 Cash (Being bonds payable repayment at face value Recorded] 660,000 43 660.000 72.764 44 45 46 01-Jan-20 Bonds Payable Loss on Retirement of bonds Discount of Bonds Payable Cash (660' 1101) (Being Retirement of bonds Recorded! 6,104.33 726,660 47 48 A B G H 1 Face Value of the Bond 2 Annual Coupon Rate 3 Annual Coupon Payment 4 Period In Years 5 Market Interest Rate 6 Total Proceeds D E 660,000 0.03 19,800 (Face Value of the Bond * Annual Coupon Rate) 3 0.04 641,687 7 8 9 Period Ended 10 11 12 13 Cash Paid 01-Jan-18 31-Dec-18 +B3 31-Dec-19 +B3 31-Dec-20 +B3 Changes During the Period Changes During the Period Discount Amortised Interest Expense Bonds Payable Discount on Bonds Payable Carrying Value +B1 +B1-B6 +B6 +($B$1-$B$6)/$B$4 +B12+C12 +E11 +F11-C12 +G11+C12 +($B$1-$B$6)/$B$4 +B13+C13 +E12 +F12-C13 +G12+C13 +($B$1-$B$6)/$B$4 +B14+C14 +E13 +F13-C14 +G13+C14 14 15 A B C D E Date Credit 16 17 18 19 20 Debit +B6 Particulars 01-Jan-18 Cash Discount on Bonds Pauable Bonds Payable (Being Bonds Issue Recorded) + F11 +C18+C19 +D12 31-Dec-18 Interest Expense Discount on Bonds Payable Cash (Being Interest Expenses Recorded) +C12 +C23-024 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 +013 31-Dec-19 Interest Expense Discount on Bonds Payable Cash (Being Interest Expenses Recorded) +C13 +C29-030 +014 31-Dec-20 Interest Expense Discount on Bonds Payable Cash (Being Interest Expenses Recorded) +C14 +C34-035 37 38 39 31-Dec-20 Bonds Payable +1 Cash +C39 (Being bonds payable repayment at face value Recorded) 40 41 42 43 44 45 +C39 +046+045-C43 01-Jan-20 Bonds Payable Loss on Retirement of bonds Discount of Bonds Payable Cash (660'11011 (Being Retirement of bonds Recorded +F13 726,660 46 47