Instructions: (A) issuance of bonds on Jan 1, 2012 (B) accrual of bond interest
ID: 2543425 • Letter: I
Question
Instructions: (A) issuance of bonds on Jan 1, 2012 (B) accrual of bond interest on December 31, 2012 (C) payment of the interest on Jan 1, 2013 (D) Redemption of bonds on maturity date assuming all interest has been paid Question A. (30 points) Clean Air Manufacturing on January 1,2012 issued a $ 100,000 bonds payable fo $ 86, 200. The company uses the effective-Interest Method for amortization of the bond. Below is a partial amortization schedule. The periods below are for 3 years Interest is paid annually on January 1st Instructions: Journalize the following ( a) Issuance of bonds on January 1, 2012 (b) Accrual of bond interest on December 31, 2012 (e) Payment of the interest on January 1, 2013 (c). Redemption of bonds on maturity date assuming all interest has been paid. Interest To Be Paid 10%x1 00,000 | Recorded Interest Expense To Be Discount Unamortized Bond Amortization Disacount Carrying Interest Periods Value 1300 Times Preceeding Bond carrying Value Issue Date Yearl.2012 Year2.2013 Year3.2014 Prepare the amorti3atlon schedd the first 3 Y earS: 2012, 203, 2
Explanation / Answer
Interest Periods Interest Interest Expense Discount Unamortized Bond Carrying Value To be paid @10% to be recorded Amortization Discount 13% Issue Date 13800 86200 Year 1 2012 10000 11206 1206 12594 87406 Year 2 2013 10000 11363 1363 11231 88769 Year 3, 2014 10000 11540 1540 9691 90309 JOURNAL ENTRY: Jan 1 2012 Cash Account Dr, 86200 Discount on Bonds payable Dr. 13800 Bonds payable 100,000 (for bonds issuance) 31-Dec-12 Interest expense Dr. 11206 Discount on bonds payable 1206 Interest expense Payable 10000 (for interest accrued) Jan 1 2013 Interest expense Payable Dr. 10000 Cash Account 10000 (for interest expense paid) On Maturity Bonds payable 100,000 Cash Account 100,000