Problem - 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, 2004, and the subsequent interest payments and charges. The company's year-end is December 31, and financial statements are prepared once yearly.
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Amortization Schedule
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Year
|
Cash
|
Interest
|
Amount
Unamortized
|
Book Value
|
|
1/1/2004
|
$11,000
|
|
$5,651
|
$ 94,349
|
|
2004
|
11,000
|
$11,322
|
5,329
|
94,671
|
|
2005
|
11,000
|
11,361
|
4,968
|
95,032
|
|
2006
|
11,000
|
11,404
|
4,564
|
95,436
|
|
2007
|
11,000
|
11,452
|
4,112
|
95,888
|
|
2008
|
11,000
|
11,507
|
3,605
|
96,395
|
|
2009
|
11,000
|
11,567
|
3,038
|
96,962
|
|
2010
|
11,000
|
11,635
|
2,403
|
97,597
|
|
2011
|
11,000
|
11,712
|
1,691
|
98,309
|
|
2012
|
11,000
|
11,797
|
894
|
99,106
|
|
2013
|
11,000
|
11,894
|
|
100,000
|
Indicate whether the bonds were issued at a premium or a discount?
Is the amortization schedule based on the straight-line method or the effective interest method?
Determine the stated interest rate and the effective interest rate.
On the basis of the schedule above, prepare the journal entry to record the issuance of the bonds on January 1, 2004.
On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2004. (Interest is paid January 1.)
On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2011. Capulet Corporation does not use reversing entries.