Question

On January 1, 2018, Loop Raceway issued 700 bonds, each with a face value of $1,000, a stated interest rate of 6 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 7 percent, so the total proceeds from the bond issue were $681,631. Loop uses the straight-line bond amortization method and adjusts for any rounding errors when recording interest in the final year.

Required:

1. 1. Prepare a bond amortization schedule.

2. 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 97.

Complete this question by entering your answers in the tabs below Req 1; Req 2 to 5 Prepare a bond amortization schedule Changes During the Period Ending Bond Liability Balances Discount on Bonds Period Ended Carrying Cash Paid Discount Amortize Bonds Payable Interest Value d Expense Payable 01/01/18 1231/18 42,000 6,123$ 48,123 12/31/19 12/31/20 $ 700,00018,369 12,246 6,123 681,631 687,754 693,877 700,000 700,000 700,000 700,000 6,123 6,123 48,123 48,123 42,000 42,000 Req 1 Req 2 to 5>

Answer 1

	Date	Account title	Debit	credit
4	Dec 31 2020	Interest expense	48123
		Bond payable	700000
		Discount on bond payable		6123
		cash (700000+42000)		742000
5	Jan 1 2020	Bond payable	700000
		Discount on bond payable		6123
		cash		679000
		Gain on retirement of bond		14877

**carrying value of bond on 1/1/2020 = 693877   (from table)

Gain = 693877-679000= 14877