Superb Professors

On January 1, 2018, 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, 2020. 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 simplified 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.
2-5. Prepare the journal entries to record the bond issue, the interest payments on December 31, 2018 and 2019, the interest and face value payment on December 31, 2020 and the bond retirement. Assume the bonds are retired on January 1, 2020, at a price of 103.
Show less No Date General Journal Debit Credit 1 Jan 01, 2018 Cash 631,964 Bonds Payable, Net 631,964 2 Dec 31, 2018 Interest Expense 25,279 Bonds Payable, Net 5,779 Cash 19,500 3 Dec 31, 2019 Interest Expense 25,510 Bonds Payable, Net 6,010 Cash 19,500 4 Dec 31, 2020 Interest Expense 650,000 Bonds Payable, Net 650,000 Cash 5 Jan 01, 2020 Bonds Payable, Net 650,000 Loss on Bond Retirement 6,025 Cash 25,525 669,500

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