Arnold Corporation issued $390,000 of 10-year, 6 percent, callable bonds on January 1, Year 1, with interest payable annually on December 31. The bonds were issued at their face amount. The bonds are callable at 103.5. The fiscal year of the corporation ends December 31. Required: a. Show the effect of the following events on the financial statements by recording the appropriate amounts in a horizontal statements model.

1. Issued the bonds on January 1, Year 1.
2. Paid interest due to bondholders on December 31, Year 1.
3. On January 1, Year 6, Arnold Corporation called the bonds. Assume that all interim entries were correctly recorded.

b. Prepare journal entries for the three events listed in Requirement a.