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, 2008, and the subsequent interest payments and charges. The company’s year end is December 31, and financial statements are prepared once yearly. Amortization Schedule Amount Carrying Year Cash Interest Unamortized Value 01.01.08 $5 651 $94 349 2008 $11 000 $11 322 5 329 94 671 2009 11 000 11 361 4 968 95 032 2010 11 000 11 404 4 564 95 436 2011 11 000 11 452 4 112 95 888 2012 11 000 11 507 3 605 96 395 2013 11 000 11 567 3 038 96 962 2014 11 000 11 635 2 403 97 597 2015 11 000 11 712 1 691 98 309 2016 11 000 11 797 894 99 106 2017 11 000 11 894 100 000 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, 2008. e) On the basis of the schedule above, prepare the journal entry or entries to reflect the bond transactions and accruals for 2008. (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 2015. Capulet Corporation does not use reversing entries.
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