Question

On January 1, 2018, Loop Raceway issued 530 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, 2020. On the issue date, the market interest rate was 8 percent, so the total proceeds from the bond issue were $516,324. Loop uses the straight-line bond amortization method and adjusts for any rounding errors when recording interest in the final year.

Required:

1. 1. Prepare a bond amortization schedule.

2. 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 99.

Answer 1

1.)	Amortization Schedule
	Date	Interest Payment @7% on $530,000 -A	Discount Amortization - B	Interest Expense (A+B)	Discount on Bond Balance	Carrying Amount
	01-01-2018				13,676	5,6,324
	31-12-2018	37,100	4,559	41,659	9,117	520,883
	31-12-2019	37,100	4,559	41,659	4,558	525,442
	31-12-2020	37,100	4,558	41,658	0	530,000
2-5 )	Date	Account Titles & Explanation	Debit $	Credit $
	01-01-2018	Cash	516,324
		Discount on Bond	13,676
		Bond Payable		530,000
		(to record the bond issue )
	31-12-2018	Interest Expense	41,659
		Cash		37,100
		Discount on Bond		4,559
		(to record interest Payment )
	31-12-2019	Interest Expense	41,659
		Cash		37,100
		Discount on Bond		4,559
		(to record interest Payment )
	31-12-2020	Interest Expense	41,658
		Cash		37,100
		Discount on Bond		4,558
		(to record interest Payment )
	31-12-2020	Bond Payable	530,000
		Cash		530,000
		( to record face value payment )

Bonds are retired on January 1, 2020, at a price of 99.

	Date	Account Titles & Explanation	Debit $	Credit $
	01-01-2020	Bond Payable	525,442
		Loss on Bond Retirement	3,815
		Cash ( 530,000 x 99% )		524,700
		Discount on Bond		4,558
		( To record bond retirement at 99 )