Rago Corporation issued bonds twice during 2010. A summary of the transactions involving the bonds follows:

2010

Jan 1 Issued $3,000,000 of 7 percent, 10-year bonds dated January 1, 2010, with interest payable on June 30 and December 31. The bonds were sold at 107.4, resulting in an effective interest rate of 6 percent.

Mar. 1 Issued $2,000,000 of 7.5 percent, 10-year bonds dated March 1, 2010, with interest payable on March 1 and September 1. The bonds were sold at 96.6, 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. 1 Paid semiannual interest on the March 1 issued and amortized the premium, using the effective interest method.

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

31 Made on end-of-year adjusting entry to accrue interest on the March 1 issue and to amortize two-thirds of the discount applicable to the second interest period.

2011

Mar 1 Paid semiannual interest on the March 1 issue and amortized the reminder applicable to the second interest period.

Required

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

2. Describe the effect 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?