Question

On January 1, 2013, Loop de Loop Raceway issued 680 bonds, each with a face value of $1,000, a stated interest rate of 7 percent paid annually on December 31, and a maturity date of December 31, 2015. On the issue date, the market interest rate was 8 percent, so the total proceeds from the bond issue were $662,454. Loop de Loop uses the straight-line bond amortization method. Required: 1. Prepare a bond amortization schedule. Changes During the Period Period Ended Ending Bond Liability Balances Discount on Bonds Bonds Carrying Value Payable Payable Discount Amortized Cash Paid Interest Expense 01/01/13 12/31/13 12/31/14 12/31/15 L L L L 2. Prepare the journal entry to record the bond issue. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.) View transaction list Journal entry worksheet Record the issuance of bond. Note: Enter debits before credits. General Journal Debit Credit Date Jan 01, 2013

Answer 1

Solution:

Period	Changes during the period			Ending bond liability balances
	Cash Paid	Discount Amortized	Interest expense	Bond payable	Discount on bond payable	Carrying value
1-Jan-13				$680,000	$17,546	$662,454
31-Dec-13	$47,600	$5,849	$53,449	$680,000	$11,697	$668,303
31-Dec-14	$47,600	$5,849	$53,449	$680,000	$5,848	$674,152
31-Dec-15	$47,600	$5,848	$53,448	$680,000	$0	$680,000

Journal Entries - Loop Raceway
Event	Date	Particulars	Debit	Credit
1	1-Jan-13	Cash Dr	$662,454.00
		Discount on bond payable Dr	$17,546.00
		To Bond Payable		$680,000.00
		(To record issue of bond)
2	31-Dec-13	Interest expense Dr	$53,449.00
		To Cash		$47,600.00
		To Discount on bond payable		$5,849.00
		(To record semiannual interest payment and discount amortization)
3	31-Dec-14	Interest expense Dr	$53,449.00
		To Cash		$47,600.00
		To Discount on bond payable		$5,849.00
		(To record semiannual interest payment and discount amortization)
4	31-Dec-15	Interest expense Dr	$53,448.00
		Bond Payable Dr	$680,000.00
		To Cash		$727,600.00
		To Discount on bond payable		$5,848.00
		(To record interest payment to retiring bond holders)
5	1-Jan-15	Bond Payable Dr	$680,000.00
		To Discount on bond payable		$5,848.00
		To Cash		$666,400.00
		To Gain on bond retirement		$7,752.00
		(To record early retirement of bond)