On January 1, 2015, Methodical Manufacturing issued 100 bonds, each with a face
ID: 2429689 • Letter: O
Question
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 6.25 percent, so the total proceeds from the bond issue were $101,995. Methodical uses the straight-line bond amortization method and adjusts for any rounding errors when recording interest in the final year.
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 6.25 percent, so the total proceeds from the bond issue were $101,995. Methodical uses the straight-line bond amortization method and adjusts for any rounding errors when recording interest in the final year.
Required: 1. Prepare a bond amortization schedule. Changes During the Period Ending Bond Liability Balances Period Cash Premium Interest Bonds Premium Se Payable on Bonds Carrying PayableValue EndedPaid Amortized Expen 01/01/15 12/31/15 12/31/16 12/31/17Explanation / Answer
1) Bond Amortization Schedule: Changes during the period Ending Bond Liability Period Ended Cash Paid Premium Amortized Interest Expense Bonds Payable Premium on Bonds Payable Carrying Value 01/01/15 $ 1,00,000 $ 1,995 $ 1,01,995 12/31/15 $ 7,000 $ 665 $ 6,335 $ 1,00,000 $ 1,330 $ 1,01,330 12/31/16 $ 7,000 $ 665 $ 6,335 $ 1,00,000 $ 665 $ 1,00,665 12/31/17 $ 7,000 $ 665 $ 6,335 $ 1,00,000 0 $ 1,00,000 Working: Cash Paid towards interest = Bonds Payable x Coupon rate = $ 1,00,000 x 7% = $ 7,000 Premium amortization = $ 1,995 / 3 = $ 665 2) 1) Date Account titles and Explanation Debit Credit 01/01/15 Cash $ 1,01,995 Bonds Payable $ 1,00,000 Premium on Bonds Payable $ 1,995 (To record issuance of bonds) 2) Date Account titles and Explanation Debit Credit 12/31/15 Interest expense $ 6,335 Premium on bonds payable $ 665 Cash $ 7,000 (To record interest expense) 3) Date Account titles and Explanation Debit Credit 12/31/16 Interest expense $ 6,335 Premium on bonds payable $ 665 Cash $ 7,000 (To record interest expense) 4) Date Account titles and Explanation Debit Credit 12/31/17 Interest expense $ 6,335 Premium on bonds payable $ 665 Cash $ 7,000 (To record interest expense) Bonds Payable $ 1,00,000 Cash $ 1,00,000 (To record retirement of bonds at maturity) 5) Date Account titles and Explanation Debit Credit 01/01/17 Bonds Payable $ 1,00,000 Premium on Bonds Payable $ 665 Loss on retirement of bond $ 2,335 Cash $ 1,03,000 (To record retirement of bonds)
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.