On January 1, 2022, Tara Clothing Corporation issued $900,000 par value, 5%, 6-year bonds. Interest is payable semiannually each January 1 and July 1 with the first interest payment due at the end of the period on July 1, 2022. The market rate of interest on the date of the bond issue was 8%. Bond issue costs are $72,725. The company’s fiscal year ends on December 31.

Required

a. Determine the issue price of the debt and the amount of the bond discount or premium.

b. Find the effective interest rate after considering bond issue costs. Prepare the amortization table for the bond issue assuming that Tara uses the effective interest rate method of amortization.

c. Prepare the journal entries necessary to account for the bonds for the first year (January 1, 2022, through January 1, 2023). Assume that the company uses a premium or discount account if needed.

d. Prepare the journal entries to record the interest accrual and amortization for year three.

e. Prepare the journal entry to record payment of the bonds at maturity.