Problem 14-1
The following amortization and interest schedule reflects the issuance of 10-year bonds by Waterway Corporation on January 1, 2011, and the subsequent interest payments and charges. The company’s year-end is December 31, and financial statements are prepared once yearly.
Amortization Schedule
year |
cash |
interest |
amount unamortized |
carrying value
|
1/1/2011 |
|
|
10,114 |
168,886 |
2011 |
19,690 |
20,266 |
9,538 |
169,462 |
2012 |
19,690 |
20,335 |
8,893 |
170,107 |
2013 |
19,690 |
20,413 |
8,170 |
170,830 |
2014 |
19,690 |
20,500 |
7,360 |
171,640 |
2015 |
19,690 |
20,597 |
6,453 |
172,547 |
2016 |
19,690 |
20,706 |
5,437 |
173,563 |
2017 |
19,690 |
20,828 |
4,299 |
174,701 |
2018 |
19,690 |
20,964 |
3,025 |
175,975 |
2019 |
19,690 |
21,117 |
1,598 |
177,402 |
2020 |
19,690 |
21,288 |
|
179,000 |
(c) Determine the stated interest rate and the effective-interest rate. (Round answers to 0 decimal places, e.g. 18%.)
The stated rate
The effective rate
(d) On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2011. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
January 1, 2011
(e) On the basis of the schedule above, prepare the journal entry to reflect the bond transactions and accruals for 2011. (Interest is paid January 1.) (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
December 31, 2011
(f) On the basis of the schedule above, prepare the journal entries to reflect the bond transactions and accruals for 2018. Waterway Corporation does not use reversing entries. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit