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Prepare journal entry to record the issuance of the bonds

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Question - Cupola Fan Corporation issued 10%, $400,000, 10-year bonds for $385,000 on June 30, 2011. Transaction costs were $1,500. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2012), the corporation exercised its call privilege and retired the bonds for $395,000. The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs.

Required:

1. Use the effective interest method to calculate interest expense. Effective interest is 10.6%

2. Prepare an amortization table for 3 years - six interest periods by using straight line.

3. Prepare journal entry to record the issuance of the bonds.

4. Prepare journal entry to record the payment of interest and amortization of debt issue costs on Dec 31, 2011.

5. Prepare journal entry to record the call of the bond.

Reference no: EM131792724

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