During Year 1 and Year 2, Agatha Corporation completed the following transactions relating to its bond issue. The corporations fiscal year is the calendar year. Year 1

January 1	Issued $210,000 of 10-year, 6 percent bonds for $204,000. The annual cash payment for interest is due on December 31.
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.

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When the bonds were issued, was the market rate of interest more or less than the stated rate of interest?

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If Agatha had sold the bonds at their face amount, what amount of cash would Agatha have received?

Amount of cash

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Prepare the general journal entries for the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• 1

  Issued $210,000 of 10-year, 6 percent bonds for $204,000. The annual cash payment for interest is due on December 31.

• 2

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

• 3

  Closed the interest expense account.

• 4

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

• 5

  Closed the interest expense account.

• Note : = journal entry has been entered

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Prepare the liabilities section of the balance sheet at December 31, Year 1 and Year 2. (Amounts to be deducted should be indicated with minus sign.)

	Year 1	Year 2
Liabilities
Carrying value of bonds payable

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

	Interest Expense
Year 1
Year 2

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Determine the amount of interest that will be paid in cash to the bondholders in Year 1 and Year 2.

	Interest Paid
Year 1
Year 2