# On January 1, 2017, Surreal Ma

On January 1, 2017, Surreal Manufacturing issued 660 bonds, eachwith a face value of \$1,000, a stated interest rate of 3.70 percentpaid annually on December 31, and a maturity date of December 31,2019. On the issue date, the market interest rate was 4.00 percent,so the total proceeds from the bond issue were \$654,508. Surrealuses the effective-interest bond amortization method.Required:1. Prepare a bond amortization schedule. (Roundyour final answers to the nearest whole dollar.)2. Prepare the journal entry to record the bondissue.

3. Prepare the journal entries to record theinterest payments on December 31, 2017, and 2018.

4. Prepare the journal entry to record theinterest and face value payment on December 31, 2019.

5. Assume the bonds are retired on January 1,2019, at a price of 101. Give the journal entry to record the bondretirement.

Part 1 – Bond DiscountAmortization Table

 Schedule of Bond DiscountAmortization Effective Interest Method Date Interest Expense (Carrying Value atbeginning of the year * Market Interest Rate 4%) Cash Paid (Face Value 660,000 *Coupon Interest Rate 3.7%) Discount Amortized (Interest Expense- Cash Paid) Carrying Amount of Bonds 1/1/17 \$0 0 \$654,508 12/31/17 \$26,180 \$24,420 \$1,760 \$656,268 12/31/18 \$26,251 \$24,420 \$1,831 \$658,099 12/31/19 \$26,321 \$24,420 \$1,901 \$660,000 \$78,752 \$73,260 \$5,492

Part 2 –

 Date GeneralJournal Debit Credit Jan.1,2017 Cash \$654,508 Discount on Bonds Payable(balancing figure) \$5,492 Bonds Payable \$660,000 (To record issuance ofbonds)

Part 3 –

 Date GeneralJournal Debit Credit Dec.31,2017 Interest Expense \$26,180 Cash or Interest Payable \$24,420 Discount on Bonds Payable(Balancing figure) \$1,760 (To record first interestpayment) Dec.31,2018 Interest Expense \$26,251 Cash or Interest Payable \$24,420 Discount on BondsPayable \$1,831 (To record second interestpayment)

Part 4 –

 Date GeneralJournal Debit Credit Dec.31,2019 Interest Expense \$26,321 Cash or Interest Payable \$24,420 Discount on Bonds Payable(Balancing figure) \$1,901 (To record third interestpayment) Dec.31,2019 Bonds Payable \$660,000 Cash \$660,000 (To record maturity ofbonds)

Part 5 –

 Date GeneralJournal Debit Credit Jan.1,2019 Bonds Payable \$660,000 Loss on Retirement of Bonds(balancing figure) \$8,501 Discount on Bonds Payable (As onDec 31, 2018) \$1,901 Cash (660 Bonds * \$1000 *101%) \$666,600 (To record retirement ofbonds)

Hope the abovecalculations, working and explanations are clear to you and helpyou to understand the concept of question…. please rate myanswer…in case any doubt, post a comment and I will try toresolve the doubt ASAP…thank you

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