On August 1, 2017, Smith Inc. sold 1000, 6% bonds having a maturity value of $1,000 each. The bonds were sold at 98. Bond issue costs of $60,000 were incurred. The bonds are dated August 1, 2017 and mature on August 1, 2021, with interest payable on August 1 and February 1 of each year. Smith uses the amortized cost method with using the effective interest method to amortize the bond premium or discount. Smith prepares financial statements annually at December 31.

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(a)The effective interest rate resulting from this transaction is 8.396%. Prove this using the RATE function in Excel

(b)Prepare the journal entry at the date of issue of the bonds.

(c)Prepare a bond amortization schedule for the bond through to its maturity date of August 1, 2021.

(d)Prepare all other required journal entries relating to the bond for all of 2017 and Feb 1, 2018.

(e)On Feb 2, 2019, the all bonds were repurchased from the Bondholders by Smith at the callable provision of 101 in the bond issuance and retired. Prepare the journal entry to record the repurchase and retirement of these bonds.