Response to the following problem:
On December 31, 20X7, Earley Bird Wireless, Inc., issues 9%, 10-year convertible bonds with a maturity value of $500,000. The semiannual interest dates are June 30 and December 31. The market interest rate is 8%, and the issue price of the bonds is 106.8. Early Bird measures interest expense by the effective-interest method.
Required:
1. Prepare an effective-interest method amortization table for the first four semiannual interest periods.
2. Journalize the following transactions:
a. Issuance of the bonds on December 31, 20X7. Credit Convertible Bonds Payable.
b. Payment of interest on June 30, 20X8.
c. Payment of interest on December 31, 20X8.
d. Retirement of bonds with maturity value of $100,000 on December 31, 20X9. Early Bird pays the call price of 102.
3. Prepare the balance sheet presentation of the bonds payable that are outstanding at December 31, 20X9.