PA10-7 (Supplement 10B) Recording Bond Issue, Interest Payments (Effective-Interest Amortization), and Early Bond Retirement [LO 10-S2]

On January 1, 2015, Surreal Manufacturing issued 650 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 $631,964. Surreal 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 Discount Amortized equaling Discount on Bonds Payable.)

2 - 5.

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 103. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations. Round your answers to the nearest whole dollar.)

TRANSACTION LIST:

• 1: Record the issuance of 650 bonds at face value of $1,000 each for $631,964.

• 2: Record the interest payment on December 31, 2015.

• 3: Record the interest payment on December 31, 2016.

• 4: Record the interest and face value payment on December 31, 2017.

• 5: Record the retirement of the bonds at a quoted price of 103, assuming the bonds are retired on January 1, 2017 rather than holding them until maturity.

Changes During the Period Ending Bond Liability Balances Discount on Bonds Payable Period Interest Expense Discount Amortized Cash Paid Bonds Payable Carrying Value Ended 01/01/15 12/31/15 12/31/16 12/31/17