Question

The following amortization and interest schedule is for the issuance of 10-year bonds by Bramble Corporation on January 1, 2020, and the subsequent interest payments and charges. The company’s year end is December 31 and it prepares its financial statements yearly.

Amortization Schedule
							Amount			Carrying
Year			Cash		Interest		Unamortized			Amount
Jan. 1,	2020						$7,005			$106,995
Dec. 31,	2020		$10,260		$10,700		6,565			107,435
	2021		10,260		10,744		6,081			107,919
	2022		10,260		10,792		5,549			108,451
	2023		10,260		10,845		4,964			109,036
	2024		10,260		10,904		4,320			109,680
	2025		10,260		10,968		3,612			110,388
	2026		10,260		11,039		2,833			111,167
	2027		10,260		11,117		1,976			112,024
	2028		10,260		11,202		1,034			112,966
	2029		10,260		11,294		0			$114,000

Determine the stated interest rate and the effective interest rate. (Round answers to 0 decimal places, e.g. 15%.)

Stated Interest Rate		%
Effective Interest Rate		%

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Based on the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1, 2020

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Based on the schedule above, prepare the journal entry to reflect the bond transactions and accruals for 2020. (Interest is paid January 1.) (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31, 2020

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Based on the schedule above, prepare the journal entries to reflect the bond transactions and accruals for 2028. Bramble Corporation does not use reversing entries. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Record journal entries in the order presented in the problem.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1, 2028Dec. 31, 2028
Jan. 1, 2028Dec. 31, 2028

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List of Accounts

Answer 1

Stated interest rate = $10,260/$114,000 = 9% Effective interest rate = $10,700/106,995 = 10% Credit Date Account Titles and Explanation 01-01-2020 Cash Discount on bonds payable Bonds payable (To record the issuance of bonds) Debit $ 106,995 $ 7,005 $ 114,000 Credit Debit $ 10,700 Date Account Titles and Explanation 31-12-2020 Interest expense Discount on bonds payable ($10,700 - $10,260) Interest payable (To record the intesest expense) $ 440 $ 10,260 Credit Debit $ 10,260 Date Account Titles and Explanation 01-01-2028 Interest payable Cash (To record the interest paid) $ 10,260 $ 11,202 31-12-2028 Interest expense Discount on bonds payable ($11,202 - $10,260) Interest payable (To record the interest expense) $ 942 $ 10,260