Johson Corporation issued bonds twice during 2010. The transactions were as follows:

2010

Jan 1Issued $1,000,000 of 7.5 percent, 10-year bonds dated January 1, 2010, with interest payable on June 30 and December 31. The bonds were sold at 96.6, resulting in an effective interest rate of 8 percent.

Apr. 1Issued $2,000,000 of 8.5 percent, 10-year bonds dated April 1, 2010, with interest payable on March 31 and September 30. The bonds were sold at 103.4, resulting in an effective interest rate of 8 percent.

June 30 Paid semiannual interest on the January 1 issued and amortized the discount, using the effective interest method.

Sept. 30 Paid semiannual interest on the April 1 issued and amortized the premium, using the effective interest method.

Dec. 31 Paid semiannual interest on the January 1 issued and amortized the discount, using the effective interest method.

31 Made on end-of-year adjusting entry to accrue interest on the April 1 issue and to amortize half the premium applicable to the second interest period.

2011

Mar 31Paid semiannual interest on the April 1 issue and amortized the premium applicable to the second half of the second interest period.

Required

1. Prepare entries in journal form to record the bond transactions.

2. Describe the effect of the above transaction on profitability and liquidity by answering the following question

a. What is the total interest expense is 2010 for each of the bond issues?

b. What is the total cash paid in 2010 for each of the bond issues?

c. What differences, if any, do you observe, and how do you explain them?