Question

The following amortization and interest schedule reflects the issuance of 10-year bonds by Coronado 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
Year		Cash		Interest		Amount Unamortized		Carrying Value
1/1/2014						$26,720		$ 106,380
2014		$14,641		$15,957		25,404		107,696
2015		14,641		16,154		23,891		109,209
2016		14,641		16,381		22,151		110,949
2017		14,641		16,642		20,150		112,950
2018		14,641		16,943		17,848		115,252
2019		14,641		17,288		15,201		117,899
2020		14,641		17,685		12,157		120,943
2021		14,641		18,141		8,657		124,443
2022		14,641		18,666		4,632		128,468
2023		14,641		19,273				133,100

(a) Indicate whether the bonds were issued at a premium or a discount.

(b) Indicate whether the amortization schedule is based on the straight-line method or the effective-interest method.

(c) Determine the stated interest rate and the effective-interest rate. (Round answers to 0 decimal places, e.g. 18%.)

(d) On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2014.

(e) On the basis of the schedule above, prepare the journal entry to reflect the bond transactions and accruals for 2014. (Interest is paid January 1.)  (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(f) On the basis of the schedule above, prepare the journal entries to reflect the bond transactions and accruals for 2021. Coronado Corporation does not use reversing entries. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Preparation of Journal entries and interest calculations: a) Bond is issued at discount b) Effective interest method c) Stated interest rate = 14641/133100 = 11% Market rate = 15957/106380 = 15% Credit d) Journal entry date account titles and explanation Debit Jan-01 Cash $ 1,06,380 Discount on bonds payable $ 26,720 Bonds payable $ 1,33,100 Credit e) Journal entry date account titles and explanation Debit Dec-31 Interest expense $ 15,957 Discount on bonds payable Interest payable $ $ 1,316 14,641 Credit f) Journal entry Date account titles and explanation Debit Jan-01 Interest payable $ 14,641 Cash $ 14,641 $ 18,141 Dec-01 Interest expense Discount on bonds payable Interest payable $ $ 3,500 14,641 Kindly Comment down for any clarifications/ queries and please upvote.