Assignment:
2005
July 1. Issued $8,000,000 of 5-year, 8% callable bonds dated July 1, 2005, at an effective rate of 10%, receiving cash of $7,382,236. Interest is payable semiannually on December 31 and June30.
Dec. 31. Paid the semiannual interest on the bonds.
31. Recorded bond discount amortization of $61,776, which was determined by using the straight-line method.
31. Closed the interest expense account.
2006
June 30. Paid the semiannual interest on the bonds.
Dec. 31. Paid the semiannual interest on the bonds.
31. Recorded bond discount amortization of the $123,552, which was determined by using the straight-line method.
31.Closed the interest expense account.
2007
June 30. Recorded the redemption of the bonds, which were called at 99. The balance in the bond discount account is $370,660 after payment of interest and amortization of discount have been recorded. (Record the redemption only.)
1. Journalize the entries to record the foregoing transactions.
2. Indicate the amount of the interest expense in (a) 2005 and (b) 2006.
3. Determine the carrying amount of the bonds as of December 31, 2006.