On April 1, 2015, Vital Suppliers Ltd, a publicly traded company, sold $10,000,000 of five-year, 5% callable bonds to finance its expansion of operations. The bonds, which pay interest on September 30 and March 31, were issued at an effective interest rate of 6%, resulting in Vital Suppliers Ltd. receiving cash of $9,573,489.86. The bond discount is amortized using the effective interest method of amortization. The fiscal year-end of the company is December 31. On March 31, 2016, $5,000,000 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 September 30, 2015, and the amortization of the bond discount, using the effective interest method.
b. The adjusting entry for interest expense at the December 31, 2015, year-end.
c. The interest payment on March 31, 2016, and the amortization of the bond discount, using the effective interest method.
d. The retirement of the bonds on March 31, 2016.
e. The interest payment on September 30, 2016, and the amortization of the bond discount, using the effective interest method.