AP10-5 Recording Bond Issuance, Interest Expense, and Effects of Bond Redemption of Financial Statements (Effective-Interest Method) LO10-3 (P10-7) excel Ashraf Ltd. sold on June 30, year 1, $4,000,000, 20-year bonds, paying a nominal interest rate of 6.5 percent. The bonds were issued at 105.7344 percent with a yield of 6 percent. The bonds pay annual interest on June 30. The company uses the effective-interest method and its fiscal year ends on December 31. Required: 1. Prepare the journal entry to record the issuance of the bond with a discount or premium account. 2. Show how the liability for bonds payable would be presented on the statement of financial position as at December 31, year 1. 3. Prepare the journal entry to record the first interest payment on June 30, year 2. 4. Ashraf Ltd. decided on June 30, year 2, to redeem the outstanding bonds at 102 percent, after paying interest to bondholders. Show how the effects of this transaction would be reported on the statement of earnings and the statement of cash flows for the year ended June 30, year 2. The company uses the indirect method to prepare the operating section of the statement of cash flows. 5. Why would Ashraf Ltd. engage in an early redemption of its bonds? Explain