1. On March 31, 2010, Grape Corp. sold $1,000,000 (par value) 8%, 10-year bonds for $961,500 including accrued interest. The bonds were dated January 1, 2010. Interest is paid semi-annually on January 1 and July 1. On April 1, 2014, Grape purchased half of the bonds on the open market at 99 plus accrued interest and retired them. The corporation uses the straight-line method for amortization of bond premiums and discounts.

a. Calculate the amount of the gain or loss on retirement of the bonds.

b. Prepare the journal entries required on April 1, 2014 to record retirement of the bonds. Assume that interest and premium or discount amortization have been recorded through January 1, 2014.

c. Prepare the journal entry on July 1, 2014 to record interest and premium or discount amortization.

2. On January 1 of the current year, Lemon Ltd. issued $500,000 (par value) 10%, six year bonds when the market rate was 9%, receiving $522,430 cash proceeds. Interest is payable annually on December 31. The corporation uses the effective interest method for amortization of bond premium or discount.

a. Calculate the interest expense for the first year.

b. Calculate the interest expense for the second year.

3. On July 1, 2014, Mango Inc. issued $400,000 (par value) 10%, ten year bonds, with interest payable semi-annually on January 1 and July 1. The bonds were issued at $454,360 to yield 8%. The corporation uses the effective interest method for amortization of bond premium or discount.

a. Prepare the journal entry on the date the bonds were issued.

b. Prepare the adjusting entry at December 31, 2014, the end of the fiscal year.

c. Prepare the entry for the interest payment on January 1, 2015.