On January 1, 2013, Radcliff Corporation issued a 10% bond of $80,000 with a maturity of January 1, 2017. Interest is payable every 1 July and 1 January. The company received $75,031.96 for the bond and the required effective interest rate was 12%.

Instructions

(a) Calculate the discount on the bond.

(b) Prepare a bond amortization schedule for 4 years. Be sure to clearly display the six-month interest payments.

(c) Prepare the necessary journal entries to show:

I. In the bond issue dated January 1, 2013

ii. 1 July 2013 interest payments

iii. 31 December 2013 interest payments

(d) What is the difference between a bond sold at a discount and a bond sold at a premium?