Explain straight-line method or effective-interest method

Question

The following amortization and interest schedule reflects the issuance of 11-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
Year		Cash		Interest		Amount Unamortized		Carrying Value
1/1/2008						$10,836		$ 171,664
2008		$20,075		$20,600		10,311		172,189
2009		20,075		20,663		9,723		172,777
2010		20,075		20,733		9,065		173,435
2011		20,075		20,812		8,328		174,172
2012		20,075		20,901		7,502		174,998
2013		20,075		21,000		6,577		175,923
2014		20,075		21,111		5,541		176,959
2015		20,075		21,235		4,381		178,119
2016		20,075		21,374		3,082		179,418
2017		20,075		23,157				182,500

(a) Indicate whether the bonds were issued at a premium or a discount.

(b) Indicate whether the amortization schedule is based on the straight-line method or the effective-interest method.

(c) Determine the stated interest rate and the effective-interest rate. (Round answers to 0 decimal places, e.g. 38,548.)

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, 2008. (Round answers to 0 decimal places, e.g. 38,548. 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, 2008

(e) On the basis of the schedule above, prepare the journal entry to reflect the bond transactions and accruals for 2008. (Interest is paid January 1.) (Round answers to 0 decimal places, e.g. 38,548. 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, 2008

(f) On the basis of the schedule above, prepare the journal entries to reflect the bond transactions and accruals for 2015. Capulet Corporation does not use reversing entries. (Round answers to 0 decimal places, e.g. 38,548. 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, 2015
December 31, 2015