1. Grant Inc. issued $400,000 of 6% bonds on June 30, 2016. The bonds mature in 10 years. For bonds of similar risk and maturity, the market interest rate is 4%. Interest is paid semiannually on December 31 and June 30. (i.e., the first interest payment will be made on December 31, 2016). For all computations, ignore below decimal point.

a) Determine whether the company sold the bond at discount or premium

b) Determine the price of the bonds at June 30, 2016 and prepare the journal entry to record the issuance of the bonds.

c) Prepare the journal entry to record interest on December 31, 2016 by using effective interest method

d) Prepare the journal entry to record interest on June 30, 2017 by using effective interest method

e) Grant Inc. did not hold the bond to maturity and retired the bond on July 1, 2017, at 105 (i.e., 105% of face value). Prepare the journal entry to record the extinguishment of the bonds on July 1, 2017. Ignore one-day interest between June 30 and July 1. In other words, the carrying value of the bonds as of June 30, 2017 (computed in question d) should be eliminated by the extinguishment of the bonds on July 1, 2017.