On April 1, 2006, ERV Corp. issued $800,000, 7%, 5-year bonds at face value.

The bonds were dated April 1, 2006, and pay interest annually on April 1. Financial statements are prepared annually on December 31.

Instructions

(a) Prepare the journal entry to record the issuance of the bonds.

(b) Prepare the adjusting entry to record the accrual of interest on December 31, 2006.

(c) Show the balance sheet presentation of bonds payable and bond interest payable on December 31, 2006.

(d) Prepare the journal entry to record the payment of interest on April 1, 2007.

(e) Prepare the adjusting entry to record the accrual of interest on December 31, 2007.

(f) Assume that on January 1, 2008, ERV pays the accrued bond interest and calls the bonds. The call price is 102. Record the payment of interest and redemption of the bonds.