Refer to PB10-6. Assume Methodical uses the effective-interest bond amortization method.
PB10-6
On January 1, 2012, Methodical Manufacturing issued 100 bonds, each with a face value of
$1,000, a stated interest rate of 5 percent paid annually on December 31, and a maturity date of December 31, 2014. On the issue date, the market interest rate was 4.25 percent, so the total proceeds from the bond issue was $102,070. Methodical uses the straight-line bond amortization method and adjusts for any rounding errors when recording interest in the fi nal year.
Required:
1. Prepare a bond amortization schedule.
2. Give the journal entry to record the bond issue.
3. Give the journal entries to record the interest payments on December 31, 2012 and 2013.
4. Give the journal entry to record the interest and face value payment on December 31, 2014.
5. Assume the bonds are retired on January 1, 2014, at a price of 101. Give the journal entry to record the bond retirement.