3 PB10-7 (Supplement 10B) Recording Bond Issue, Interest Payments (Effective-Int
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Question
3 PB10-7 (Supplement 10B) Recording Bond Issue, Interest Payments (Effective-Interest Amortization), and Early Bond Retirement LO 10-S2] On January 1, 2015, Methodical Manufacturing issued 100 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, 2017 On the issue date, the market interest rate was 6.30 percent, so the total proceeds from the bond issue were $101,857. Methodical 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. Round your answers to the nearest whole dollar. Make sure that the Carrying value equals face value of the bond in the last period. Interest expense in the last period will result in the amount in Premium Amortized equaling Premium on Bonds Payable.) Changes During the Period Ending Bond Liability Balances Premium on Bonds Payable Period Interest Premium Cash Paid Bonds Payable Carrying Value Ended 01/01/15 12/31/15 12/31/16 12/31/17 nseExplanation / Answer
Answers
Period Ended
Interest Expense
Cash Paid
Premium Amortised
Bonds Payable
Premium on Bonds Payable
Carrying Value
[A = Last 'F' x 6.3%]
[B = $100,000 x 7%]
[C = B - A]
[D = 100 x $ 1,000]
[E = F - D]
[F = F - C]
01-Jan-15
$ 100,000
$ 1,857
$ 101,857
31-Dec-15
$ 6,417
$ 7,000
$ 583
$ 100,000
$ 1,274
$ 101,274
31-Dec-16
$ 6,380
$ 7,000
$ 620
$ 100,000
$ 654
$ 100,654
31-Dec-17
$ 6,346
$ 7,000
$ 654
$ 100,000
$ 0
$ 100,000
Date
Accounts title
Debit
Credit
01-Jan-15
Cash
$ 101,857
Bonds Payable
$ 100,000
Premium on Bonds Payable
$ 1,857
(Bonds issued at premium)
31-Dec-15
Interest Expense
$ 6,417
Premium on Bonds Payable
$ 583
Cash
$ 7,000
(Interest paid)
31-Dec-16
Interest Expense
$ 6,380
Premium on Bonds Payable
$ 620
Cash
$ 7,000
(Interest paid)
31-Dec-17
Interest Expense
$ 6,346
Premium on Bonds Payable
$ 654
Cash
$ 7,000
(Interest paid)
31-Dec-17
Bonds Payable
$ 100,000
Loss on Bonds Payable
$ 4,000
Cash
$ 104,000
(bonds retired)
Period Ended
Interest Expense
Cash Paid
Premium Amortised
Bonds Payable
Premium on Bonds Payable
Carrying Value
[A = Last 'F' x 6.3%]
[B = $100,000 x 7%]
[C = B - A]
[D = 100 x $ 1,000]
[E = F - D]
[F = F - C]
01-Jan-15
$ 100,000
$ 1,857
$ 101,857
31-Dec-15
$ 6,417
$ 7,000
$ 583
$ 100,000
$ 1,274
$ 101,274
31-Dec-16
$ 6,380
$ 7,000
$ 620
$ 100,000
$ 654
$ 100,654
31-Dec-17
$ 6,346
$ 7,000
$ 654
$ 100,000
$ 0
$ 100,000
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