Downing Co. produces and sells synthetic string for tennisrackets. The following transactions were completed by DowningCo., whose fiscal year is the calendar year: 2002 July 1.
Issued $20,000,000 of 5-year,14% callable bonds dated July 1, 2002, at an effective rate of 12%,receiving cash of $21,472,126. Interest is payablesemiannually on December 31 and June 30.
Dec 31.Paid the semiannual interest on the bonds.
31.Recorded bond premium amortization of $147,213, which was determined byusing the straight-line method.
31. Closed theinterest expense account. 2003 June 30. Paid the semiannual interest on thebonds.
Dec. 31. Paid the semiannual interest on thebonds.
31. Recordedbond premium amortization of $294,425, which was determined byusing the straight-line method.
31. Closed the interest expense account.
2004 July
1.Recorded the redemptionof the bonds, which were called at 102. The balance in thebond premium account is $883,275 after the payment of interest andamortization of premium have been recorded. (Record theredemption only.)
INSTRUCTIONS: 1. Journalize the entries to record the foregoingtransactions.
2. Indicate the amount of the interest expense in (a)2002 and (b) 2003. 3. Determine the carrying amount of the bonds as ofDecember 31, 2003.