Michelle issued 8%, $80,000 bonds on February 1, 2020. The bonds pay interest semiannually each July 31 and January 31 and were issued to yield 7%. The bonds mature January 31, 2030, and the company uses the effective interest method to amortize bond discounts or premiums.

a) Prepare journal entries on the following dates.

1. February 1, 2020Issuance of bonds.

2. July 31, 2020Interest payment.

3. December 31, 2020Interest accrual.

4. January 31, 2021Interest payment.

b) Indicate how the balance sheet and income statement of Master Corp. for the year ended December 31, 2020 would reflect these transactions.

c) What is the total cost of financing assuming that the bonds remain outstanding for the full term?

d) What is the total cost of financing assuming that the bonds remain outstanding for the full term if the straight-line interest method was used to amortize the premium?

e) If the company were to have instead amortized the premium using the straight-line interest method, would interest expense recognized be lower or higher in 2020?

f) If the company were to have instead amortized the premium using the straight-line interest method, would interest expense recognized be lower or higher in 2030?