On January 1, 2007, Gelber Company issued $2,200,000 face value, 10%, 15-year bonds at $1,900,322. This price resulted in an effective interest rate of 12% on the bonds. Gelber uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest January 1.

Instructions

(a) Prepare the journal entries to record the following transactions.

(1) The issuance of the bonds on January 1, 2007.

(2) The accrual of interest and the amortization of the discount on December 31, 2007.

(3) The payment of interest on January 1, 2008.

(4) The accrual of interest and the amortization of the discount on December 31, 2008.

(b) Show the proper balance sheet presentation for the liability for bonds payable on the December 31, 2008, balance sheet.

(c) Provide the answers to the following questions in narrative form.

(1) What amount of interest expense is reported for 2008?

(2) Would the bond interest expense reported in 2008 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used?

(3) Determine the total cost of borrowing over the life of the bond.

(4) Would the total bond interest expense be greater than, the same as, or less than the total interest expense that would be reported if the straight-line method of Prepare installment payments amortization were used?

schedule, journal entries for a mortgage note payable