During Year $1$ and Year $2,$ Agatha Corporation completed the following transactions relating to its bond issue. The corporation's fiscal

year is the calendar year.

Year $1$

January $1$ Issued $$330,000$ of $10-$year, $7$ percent bonds for $$318,000.$ The annual cash payment for interest is due on December

December $31$ Recognized interest expense, including the straight$-$line amortization of the discount, and made the cash payment for

interest.

December $31$ Closed the interest expense account.

Year $2$

December $31$ Recognized interest expense, including the straight$-$line amortization of the discount, and made the cash payment for

interest.

December $31$ Closed the interest expense account.

Required

a$-1.$ When the bonds were issued, was the market rate of interest more or less than the stated rate of interest?

a$-2.$ If Agatha had sold the bonds at their face amount, what amount of cash would Agatha have received?

b$.$ Prepare the general journal entries for the above transactions.

c$.$ Prepare the liabilities section of the balance sheet at December $31,$ Year $1$ and Year $2.$

d$.$ Determine the amount of interest expense that will be reported on the income statements for Year $1$ and Year $2.$

e$.$ Determine the amount of interest that will be paid in cash to the bondholders in Year $1$ and Year $2.$Journal entry worksheet

Issued $$330,000$ of $10-$year, $7$ percent bonds for $$318,000.$ The annual cash

payment for interest is due on December $31.$

Note: Enter debits before credits.Journal entry worksheet

$1$

Recognized interest expense, including the straight$-$line amortization of the

discount, and made the cash payment for interest.

Note: Enter debits before credits.Journal entry worksheet

Closed the interest expense account.

Note: Enter debits before credits.Journal entry worksheet

Recognized interest expense, including the straight$-$line amortization of the

discount, and made the cash payment for interest.

Note: Enter debits before credits.Journal entry worksheet

$4$

$5$

Closed the interest expense account.

Note: Enter debits before credits.