On January 1, 2015, Surreal Manufacturing issued 600 bonds, each with a face val

ID: 2490364 • Letter: O

Question

On January 1, 2015, Surreal Manufacturing issued 600 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, 2017. On the issue date, the market interest rate was 4 percent, so the total proceeds from the bond issue were $583,352. Surreal uses the effective-interest bond amortization method and adjusts for any rounding errors when recording interest in the final year.

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 Balance

Complete the required journal entries to record the bond issue, interest payments on December 31, 2015 and 2016, interest and face value payment on December 31, 2017, and bond retirement. Assume the bonds are retired on January 1, 2017, at a price of 101. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Round your answers to the nearest whole dollar amount.)

a. Record the issuance of 600 bonds at face value of $1,000 each for $583,352.

b. Record the interest payment on December 31, 2015.

c. Record the interest payment on December 31, 2016.

d. Record the interest and face value payment on December 31, 2017.

e. Record the retirement of the bonds at a quoted price of 101, assuming the bonds are retired on January 1, 2017.

Required:

Explanation / Answer

Bond Amortization Schedule:

Interest payment

@3%

Interest Expense

Mkt 4% X G

Amortization of

bond discount

(C-B)

Debit bal

in bond

discount

Credit bal

in bonds

payable

Book Value

of Bonds

(F-E)

Journal Entries:

A B C D E F G Date