3 PB107 Supplement 10B Recording Bond Issue Interest Payment

3 PB10-7 (Supplement 10B) Recording Bond Issue, Interest Payments (Effective-Interest Amortization), and Early Bond Retirement LO 10-S2] On January 1, 2015, Methodical Manufacturing issued 100 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, 2017 On the issue date, the market interest rate was 6.30 percent, so the total proceeds from the bond issue were $101,857. Methodical 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. 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 Premium Amortized equaling Premium on Bonds Payable.) Changes During the Period Ending Bond Liability Balances Premium on Bonds Payable Period Interest Premium Cash Paid Bonds Payable Carrying Value Ended 01/01/15 12/31/15 12/31/16 12/31/17 nse

Solution

Answers

Period Ended

Interest Expense

Cash Paid

Premium Amortised

Bonds Payable

Premium on Bonds Payable

Carrying Value

[A = Last \'F\' x 6.3%]

[B = $100,000 x 7%]

[C = B - A]

[D = 100 x $ 1,000]

[E = F - D]

[F = F - C]

01-Jan-15

$                         100,000

$                                1,857

$            101,857

31-Dec-15

$                6,417

$                                     7,000

$                           583

$                         100,000

$                                1,274

$            101,274

31-Dec-16

$                6,380

$                                     7,000

$                           620

$                         100,000

$                                   654

$            100,654

31-Dec-17

$                6,346

$                                     7,000

$                           654

$                         100,000

$                                        0

$            100,000

Date

Accounts title

Debit

Credit

01-Jan-15

Cash

$                                 101,857

Bonds Payable

$                   100,000

Premium on Bonds Payable

$                       1,857

(Bonds issued at premium)

31-Dec-15

Interest Expense

$                                     6,417

Premium on Bonds Payable

$                                         583

Cash

$                       7,000

(Interest paid)

31-Dec-16

Interest Expense

$                                     6,380

Premium on Bonds Payable

$                                         620

Cash

$                       7,000

(Interest paid)

31-Dec-17

Interest Expense

$                                     6,346

Premium on Bonds Payable

$                                         654

Cash

$                       7,000

(Interest paid)

31-Dec-17

Bonds Payable

$                                 100,000

Loss on Bonds Payable

$                                     4,000

Cash

$                   104,000

(bonds retired)

Period Ended	Interest Expense	Cash Paid	Premium Amortised	Bonds Payable	Premium on Bonds Payable	Carrying Value
	[A = Last \'F\' x 6.3%]	[B = $100,000 x 7%]	[C = B - A]	[D = 100 x $ 1,000]	[E = F - D]	[F = F - C]
01-Jan-15				$                         100,000	$                                1,857	$            101,857
31-Dec-15	$                6,417	$                                     7,000	$                           583	$                         100,000	$                                1,274	$            101,274
31-Dec-16	$                6,380	$                                     7,000	$                           620	$                         100,000	$                                   654	$            100,654
31-Dec-17	$                6,346	$                                     7,000	$                           654	$                         100,000	$                                        0	$            100,000