Assume the same facts as PA10-7, except that Surreal uses the simplified effective-interest bond amortization method, as

Question:

Assume the same facts as PA10-7, except that Surreal uses the simplified effective-interest bond amortization method, as shown in Supplement 10C.

PA10-7

On January 1, 2017, 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, 2019. 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.

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, 2017, and 2018.

4. Give the journal entry to record the interest and face value payment on December 31, 2019.

5. Assume the bonds are retired on January 1, 2019, at a price of 101. Give the journal entry to record the bond retirement.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...

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