Question

On January 1, 2018, Surreal Manufacturing issued 610 bonds, each with a face value of $1,000, a stated interest rate of 3 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 4 percent, so the total proceeds from the bond issue were $593,074. Surreal 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. 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 102.

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 Discount Amortized equaling Discount on Bonds Payable.)

	Changes During the Period Ending Bond Liability Balances Period Ended Interest Expense Cash Paid Discount Amortized Bonds Payable Discount on Bonds Payable Carrying Value 01/01/18 12/31/18 12/31/19 12/31/20

Answer 1

	Changes during the Period			Ending bond Liability balance
period	interest	Cash	discount	Bonds	discount on	Carrying value
ended	expense	paid	amortized	payable	bonds pay
1/1/2018				610,000	16,926	593,074
12/31/2018	23723	18300	5423	610000	11503	598497
12/31/2019	23940	18300	5640	610000	5863	604137
12/31/2020	24163	18300	5863	610000	0	610000
Date	General Journal				Debit	Credit
1/1/2018	Cash				593,074
	Discount on bonds payable				16,926
	Bonds payable					610,000
12/31/2018	interest expense				23723
	discount on bonds payable					5423
	cash					18300
12/31/2019
	interest expense				23940
	discount on bonds payable					5640
	cash					18300
12/31/2020
	interest expense				24163
	discount on bonds payable					5863
	cash					18300
1/1/2020	Bonds payable				610,000
	loss on redemption				18,063
	Discount on bonds					5,863
	cash					622200