The following section is taken from Paynter balance sheet at December 31, 2011.
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Current liabilities
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Interest payable
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$ 40,000
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Long-term liabilities
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Bonds payable (8%, due January 1, 2015)
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500,000
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Interest is payable annually on January 1. The bonds are callable on any annual interest date.
Instructions
(a) Journalize the payment of the bond interest on January 1, 2012.
(b) Assume that on January 1, 2012, after paying interest, Paynter calls bonds having a face value of $200,000. The call price is 103. Record the redemption of the bonds.
(c) Prepare the adjusting entry on December 31, 2012, to accrue the interest on the remaining bonds.