Problem 14-1 The following amortization and interest schedule reflects the issua
ID: 2343341 • Letter: P
Question
Problem 14-1 The following amortization and interest schedule reflects the issuance of 10-year bonds by Concord 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 1/1/2011 $12,974 $ 216,626 2011 $25,256 $25,995 12,235 217,365 2012 25,256 26,084 11,407 218,193 2013 25,256 26,183 10,480 219,120 2014 25,256 26,294 9,442 220,158 2015 25,256 26,419 8,279 221,321 2016 25,256 26,559 6,976 222,624 2017 25,256 26,715 5,517 224,083 2018 25,256 26,890 3,883 225,717 2019 25,256 27,086 2,053 227,547 2020 25,256 27,309 229,600 (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%.) The stated rate % The effective rate % (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. Concord 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
Explanation / Answer
a The Bonds were issued at a discount b The amortization schedule is based on the effective-interest method c Stated interest rate = 25256/229600= 11% Effective-interest rate = 25995/216626= 12% d Jan-1-11 Cash 216626 Discount on Bonds payable 12974 Bonds payable 229600 e Dec-31-11 Interest expense 25995 Discount on Bonds payable 739 Interest payable 25256 f Jan-1-18 Interest payable 25256 Cash 25256 Dec-31-18 Interest expense 26890 Discount on Bonds payable 1634 Interest payable 25256