BOND INTEREST PAYMENTS AND INTEREST EXPENSE (EFFECTIVE INTEREST)
On December 31, 2010, Hawthorne Corporation issued for $155,989, five-year bonds with a face amount of $150,000 and a stated (or coupon) rate of 9 percent. The bonds pay interest annually and have an effective interest rate of 8 percent. Assume Hawthorne uses the effective interest rate method.
Required:
1. Prepare the entry to record the sale of the bonds.
2. Calculate the amount of the interest payments for the bonds.
3. Prepare the amortization table through 2012.
4. Prepare the journal entry for December 31, 2011 to record the payment of interest and the related interest expense.
5. Calculate the annual interest expense for 2011 and 2012.