Instructions a. Indicate whether the bonds were issued at a premium or a discount and how you can determine this fact from the schedule. b. Indicate whether the amortization schedule is based on the straight-line method or the effective-interest method, and how you can determine which method is used. c. Determine the stated interest rate and the effective interest rate. d. On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2014. e. On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2014. (Interest is paid January 1.) f. On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2021. Capulet Corporation does not use reversing entries. P14-1 (p. 14-43) (Points are shown before each question number +21 points possible) The following schedule reflects the issuance of 10-year bonds on January 1, 2014, and the subsequent interest payments and charges. The company's year-end is December 31, and financial statements are prepared once yearly Amortization Schedule Amount Carrying Year Cash* Interest Unamortized Value 1/1/2014 $5,651 $94,349 2014 $11,000 $11,322 5,329 94,671 2015 11,000 11,361 4,968 95,032 2016 11,000 11,404 4,564 95,436 2017 11,000 11,452 4,112 95,888 2018 11,000 11,507 3,605 96,395 2019 11,000 11,567 3,038 96,962 2020 11,000 11,635 2,403 97,597 2021 11,000 11,712 1,691 98,309 2022 11,000 11,797 894 99, 106 2023 11,000 11,894 100,000 * - This is to be paid on January 1 of subsequent year 1. (2 points) Indicate below if the bonds were issued at a premium or discount (by placing an X in the box to the left of your answer): Premium Discount How do you know? (Explain below.) 2. (2 points) Indicate below if the schedule is based on the straight-line method or the effective-interest method (by placing an X in the box to the left of your answer): Effective-Interest Straight-Line How do you know? (Explain below.) 3. (4 points) Determine the stated rate and effective-interest rate. Stated Rate: Effective-Interest Rate: 4. (3 points) Based on the schedule, record the entry to record the issuance of the bonds on January 1, 2014: ASSETS LIABILITIES + EQUITY + + + 5. (3 points) Based on the schedule, prepare the entries for the remaining bond transactions and accruals for 2014 (interest is paid January 1): ASSETS = + EQUITY LIABILITIES + + + 6. (7 points) Based on the schedule, prepare the entry or entries to reflect all bond related transactions and accruals related to the year 2021. Please include the applicable date. Assume the company does not use reversing entries. (Hint: There are two separate entries represented by the T-Accounts below.] ASSETS = + EQUITY LIABILITIES + + + Date: Date
