The following amortization and interest schedule reflects th

The following amortization and interest schedule reflects the issuance of 10-year bonds by Buffalo Corporation on January 1, 2011, and the subsequent interest payments and charges. The company’s year-end is December 31, and financial statements are prepared once yearly.

Amortization Schedule

Year

Cash

Interest

Amount
Unamortized

Carrying
Value

(a) Indicate whether the bonds were issued at a premium or a discount.

(b) Indicate whether the amortization schedule is based on the straight-line method or the effective-interest method.

(c) Determine the stated interest rate and the effective-interest rate. (Round answers to 0 decimal places, e.g. 18%.)

(d) On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2011. (If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

January 1, 2011

(e) On the basis of the schedule above, prepare the journal entry to reflect the bond transactions and accruals for 2011. (Interest is paid January 1.) (If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

December 31, 2011

(f) On the basis of the schedule above, prepare the journal entries to reflect the bond transactions and accruals for 2018. Buffalo Corporation does not use reversing entries. (If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

Solution

Solution a:

As carrying value is increasing gradually as per amortization schedule, therefore bonds were issued at discount.

Solution b:

As interest expense is increasing every year as per amortization schedule, therefore amortization schedule is based on effective interest method.

Solution c:

Stated interest rate = $14,883 / $135,300 = 11%

Effective interest rate = $16,221 / $108,137 = 15%

Solution d:

Solution e:

Solution f: