PA10-6 (Supplement 10A) Recording Bond Issue, Interest Payments (Straight-Line A

Question

PA10-6 (Supplement 10A) Recording Bond Issue, Interest Payments (Straight-Line Amortization), and Early Bond Retirement [LO 10-S1] On January 1, 2015, Loop Raceway issued 610 bonds, each with a face value of S1,000, a stated interest rate of 6% paid annually on December 31, and a maturity date of December 31, 2017. On the issue date the market interest rate was 7 percent, so the total proceeds from the bond issue were S593,992. Loop 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 Discount Carrying on Bonds Value Period Cash Discount Interest Bonds Payable Payable EndedPaidAmortized Expense P 01/01/15 12/31/15 12/31/16 12/31/17

Explanation / Answer

Period Cash paid P= B*3% discount amortized A Interest expenses P+A Bond Payable B Discount on Bonds payable Carrying value C-A 01-01-2015 610000 16008 593992 12/31/2015 18300 5336 23636 610000 10672 599328 12/31/2016 18300 5336 23636 610000 5336 604664 12/31/2017 18300 5336 23636 610000 0 610000 ans 2 Date Accounts Title Dr Cr 1 Cash 593992 Discount on Bonds payable 16008 Bonds Payable 610000 2 Interest expenses 23636 Discount on Bonds payable 5336 Cash 18300 3 Interest expenses 23636 Discount on Bonds payable 5336 Cash 18300 4 Bonds Payable 610000 Interest expenses 23636 Discount on Bonds payable 5336 Cash 628300 Bonds Payable 610000 5 Gain on retirement of Bonds 12964 Discount on Bonds payable 5336 Cash (610*970) 591700

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