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P14 1 (Analysis of Amortization Schedule and Interest Entries)

The following amortization and interest schedule reflects the issuance of 10 year bonds by Capulet Corporation on January 1, 2006, and the subsequent interest payments and charges. The company’s year end is December 31, and financial statements are prepared once yearly.

Amortization Schedule

Instructions

(a) Indicate whether the bonds were issued at a premium or a discount and how you can determine this fact from the schedule.

(b) Indicate whether the amortization schedule is based on the straight line method or the effective interest method and how you can determine which method is used.

(c) Determine the stated interest rate and the effective interest rate.

(d)On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2006.

(e)On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2006. (Interest is paid January 1.)

(f)On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2013. Capulet Corporation does not use reversing entries.

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