On January 1, 2018, Surreal Manufacturing issued 510 bonds, each with a face val

Question

On January 1, 2018, Surreal Manufacturing issued 510 bonds, each with a face value of $1,000, a stated interest rate of 3 percent pai annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 4 percent, so th total proceeds from the bond issue were $495,849. Surreal uses the 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 102. Complete this question by entering your answers in the tabs below. Rea 1 Req 2 to 5 Prepare a bond amortization schedule. (Round your answers to the nearest whole dollar Make sure that the Carrying value equals value of the bond in the last period. Interest expense in the last period will result in the amount in equaling Discount on Bonds Payable.

Explanation / Answer

Changes during the Period Ending bond Liability balance period interest Cash discount Bonds discount on Carrying value ended expense paid amortized payable bonds pay 1/1/2018 510,000 14,151 495,849 12/31/2018 19834 15300 4534 510000 9617 500383 12/31/2019 20015 15300 4715 510000 4902 505098 12/31/2020 20202 15300 4902 510000 0 510000 Date General Journal Debit Credit 1/1/2018 Cash 495,849 Discount on bonds payable 14,151 Bonds payable 510,000 12/31/2018 interest expense 19834 discount on bonds payable 4534 cash 15300 12/31/2019 interest expense 20015 discount on bonds payable 4715 cash 15300 12/31/2020 interest expense 20202 discount on bonds payable 4902 cash 15300 1/1/2020 Bonds payable 510,000 loss on redemption 15,102 Discount on bonds 4,902 cash (510,000*1.02) 520200

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