An examination of the accounting records of the Durham Corporation on January 1, 2008 (after reversing entries had been made for all accrued interest at the end of 2007) disclosed the following information regarding the company’s long-term debt:

12.5% bonds, dated January 1, 2004, paying interest semiannually on June 30 and

December 31, and due December 31, 2010. .................. $1,300,000

11% convertible bonds, dated April 1, 2006, paying interest semiannually on March 31

and September 30, and due March 31, 2011. ............... $ 500,000

Discount on convertible bonds payable ................... (17,500)

$ 482,500

9% bonds, dated March 1, 2007, paying interest annually on February 28, and due

February 28, 2012. .......................... $ 100,000

Discount on bonds payable ......................... (3,960)

$ 96,040

4-year, non-interest-bearing note issued January 1, 2007. (Durham’s incremental

borrowing rate on the date the note was issued was 10%.) ........... $ 80,000

Discount on note payable ......................... (19,895)

$ 60,105

Additional information disclosed in the notes to Durham Corporation’s 2007 financial statements:

1. The conversion option allows the holder of each $1,000 bond to exchange it for 30 shares of $10 par common stock. Durham uses the book value method to record conversions of bonds to common stock.

2. Each $1,000 bond of the 9% bonds dated March 1, 2007 carries 15 detachable warrants. The company had recorded the 1,500 warrants on the bonds at $4,800 in a Common Stock Warrants account. The exchange of three warrants allows the holder to acquire one share of $10 par common stock for $27.

3. The discount on the convertible bonds and the discount on the 9% bonds with detachable warrants are being amortized using the straight-line method.

4. The discount on the note payable is being amortized annually using the effective interest method.

During 2008, the Durham Corporation engaged in the following long-term debt transactions:

Jan. 1 Issued 11%, $800,000 face value bonds for $820,302, a price to yield 10%. Interest on these bonds is payable semiannually on June 30 and December 31, and they are due December 31, 2010. The effective interest method is to be used to amortize the premium. The bonds are callable at 107.

May 1 Six hundred warrants from the 9% bonds were exercised when the common stock was selling for $42 per share.

Sept. 29 Convertible bonds of $100,000 were exchanged when the common stock was selling for $45 per share.

Nov. 1 Retired $200,000 of the bonds issued on January 1, 2008, at the call price plus accrued interest.

Required

1. Prepare the journal entries for Durham Corporation to record all the transactions that occurred during 2008 relating to the preceding information.

2. Prepare the long-term debt section of the Durham Corporation’s balance sheet on December 31, 2008.