On January 1, 2015, Grave Suppliers Ltd., a publicly traded company, sold $20,000,000 of five-year, 5% callable bonds to finance its expansion of operations. The bonds, which pay interest on June 30 and December 31, were issued at an effective interest rate of 6%, resulting in Grave Suppliers Ltd. receiving cash of $19,146,979.72. The bond discount is amortized using the effective interest method of amortization. The fiscal year-end of the company is August 31. On December 31, 2015, $10,000,000 of the bonds were called at 101, the rate provided in the bond indenture.

Instructions

1. Journalize the entry to record the amount of cash proceeds from the sale of the bonds.

2. Journalize the entries to record the following:

a. The first semiannual interest payment on June 30, 2015, and the amortization of the bond discount, using the effective interest method.

b. The adjusting entry for interest expense at the August 31, 2015, year-end.

c. The interest payment on December 31, 2015, and the amortization of the bond discount, using the effective interest method.

d. The retirement of the bonds on December 31, 2015.

e. The interest payment on June 30, 2016, and the amortization of the bond discount, using the effective interest method.