On January 1, 2009, Loop Raceway issued 600 bonds, each with a face value of $1,
ID: 2498759 • Letter: O
Question
On January 1, 2009, Loop Raceway issued 600 bonds, each with a face value of $1,000, a stated interest rate of 4.5% paid annually on December 31, and a maturity date of December 31, 2011. On the issue date, the market interest rate was 6 percent, so the total proceeds from the bond issue were $575,931. Loop uses the straight-line bond amortization method.
?Required: 1. Prepare a bond amortization schedule. (Round your answers to the nearest whole dollar amount. Leave no cells blank - be certain to enter "0" wherever required. Make sure that the unamortized premium or discount equals to '0' and the Carrying value equals to face value of the bond in the last period. Interest expense in the last period should be calculated as Cash Interest (+)discount/(-)premium amortized.)
Explanation / Answer
1) Chart
01-01-09
Bond Payable - 600,000
Discount on bond payable - 24,609
Carrying value - 575,931
31-12-2009
Cash Paid - 27,000 (600,000 X 4.5%)
Discount amortized - 8,023 (24,069/3 years)
Interest Epense - 35,023 ( 27,000 + 8,023 )
Bond value - 600,000
discount amortized - 16,046 ( 24,609 - 8,023)
Carrying value - 583,954
1-12-2010
Cash Paid - 27,000 (600,000 X 4.5%)
Discount amortized - 8,023 (16,046/2 years)
Interest Epense - 35,023 ( 27,000 + 8,023 )
Bond value - 600,000
discount amortized - 8,023 ( 16,046 - 8,023)
Carrying value - 583,954
31-12-2011
Cash Paid - 627,000 (600,000 X 4.5%) + (Bond value - 600,000)
Discount amortized - 8,023 (24,069/3 years)
Interest Epense - 35,023 ( 27,000 + 8,023 )
Bond value - Nil
discount amortized - Nil ( 8,023 - 8,023)
Carrying value - Nil
2) Journal 01-01-09
Cash Dr 575,931
Discount on issue Dr 24,069
Bonds Payable Cr 600,000
3) journal entry
31-12-2009
Interest expense Dr 35,023
Discount on issue of bond Cr 8,023
Cash Cr 27,000
31-12-2010
Interest expense Dr 35,023
Discount on issue of bond Cr 8,023
Cash Cr 27,000
4) Journal payment 31-12-2011
Ineterst expense Dr 35,023
Bonds Payable Dr 600,000
Discount on Issue of Bond Cr 8,023
Cash Dr 627,000
5) Journal
Bonds Payable Dr 600,000
Cash Cr 588,000 ( 600 X 980)
Discount on issue Cr 8,023
Gain on retirement Cr 3,977
Assumption : $1000 bond can not be retired at $98 it must be $980 , if it is $98 replace the $980 with $98 and rest all is gain on retirement)
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