Problem 14-1 The following amortization and interest schedule reflects the issua
ID: 2338070 • Letter: P
Question
Problem 14-1
The following amortization and interest schedule reflects the issuance of 10-year bonds by Carla Corporation on January 1, 2011, and the subsequent interest payments and charges. The company’s year-end is December 31, and financial statements are prepared once yearly.
Amortization Schedule
Year
Cash
Interest
Amount
Unamortized
Carrying
Value
(a) Indicate whether the bonds were issued at a premium or a discount.
(b) Indicate whether the amortization schedule is based on the straight-line method or the effective-interest method.
(c) Determine the stated interest rate and the effective-interest rate. (Round answers to 0 decimal places, e.g. 18%.)
(d) On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2011. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
January 1, 2011
(e) On the basis of the schedule above, prepare the journal entry to reflect the bond transactions and accruals for 2011. (Interest is paid January 1.) (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
December 31, 2011
(f) On the basis of the schedule above, prepare the journal entries to reflect the bond transactions and accruals for 2018. Carla Corporation does not use reversing entries. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
Open Show Work
Amortization Schedule
Year
Cash
Interest
Amount
Unamortized
Carrying
Value
Explanation / Answer
a The bonds were issued at a discount b The amortization schedule is based on Effective interest method c The stated rate = 27214/247400= 11% The effective rate = 29660/197733= 15% d Jan-1-11 Cash 197733 Discount on Bonds payable 49667 Bonds payable 247400 e 31-Dec-11 Interest expense 29660 Discount on Bonds payable 2446 Interest payable 27214 f Jan-1-18 Interest payable 27214 Cash 27214 Dec-31-18 Interest expense 33720 Discount on Bonds payable 6506 Interest payable 27214