BOND INTEREST PAYMENTS AND INTEREST EXPENSE

(EFFECTIVE INTEREST)

On December 31, 2010, Hawthorne Corporation issued for $155,989, five-year bonds with a face amount of $150,000 and a stated (or coupon) rate of 9 percent. The bonds pay interest annually and have an effective interest rate of 8 percent. Assume Hawthorne uses the effective interest rate method.

Required:

. Prepare the entry to record the sale of the bonds.

. Calculate the amount of the interest payments for the bonds.

. Prepare the amortization table through 2012.

. Prepare the journal entry for December 31, 2011 to record the payment of interest and the related interest expense.

. Calculate the annual interest expense for 2011 and 2012.

Exercise