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. 1. Prepare a bond amortization schedule.

2. 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.

3. 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

Answer rating: 100% (QA)

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