Problem 3: Recording Entries for Bonds

Following is an amortization table for an issue of three-year bonds on January 1, 2014:

Effective Contractual Carrying

Carrying Value at Interest Interest Amortization Value End

Year Beginning of Year Incurred to be Paid of Principal Of Year

2014 $105,154 $8,412 $10,000 $1,588 $103,566

2015 $103,566 $8,285 $10,000 $1,715 $101,851

2016 $101,851 $8,148 $10,000 $1,852 $100,000

Total $24,845 $30,000 $5,155

Required: Place you answer in the shaded boxes below with any computations to the right

A. How much were the bonds sold for?

B. What is the stated (contractual) rate of interest?

C. What is the effective rate of interest?

D. Record the entries necessary over the life of the bonds for the issuance, retirement and yearly interest accrual.

You do not need to record the payment of interest.

Date Account Title Debit Credit

1/1/14 Cash The accounts for the first entry have been entered

Premium on Bonds Payable enter the amounts and record the remaining entries.

Bonds Payable Start each entry opposite the date

12/31/14

12/31/15

12/31/16

12/31/16