On January 1, 2016, Knorr Corporation issued $1,400,000 of 6%, 5-year bonds dated January 1, 2016. The bonds pay interest annually on December 31. The bonds were issued to yield 7%. Bond issue costs associated with the bonds totaled $27,560.53.

Required:

Prepare the journal entries to record the following:

January 1, 2016Sold the bonds at an effective rate of 7%

December 31, 2016First interest payment using the effective interest method

December 31, 2016Amortization of bond issue costs using the straight-line method

December 31, 2017Second interest payment using the effective interest method

December 31, 2017Amortization of bond issue costs using the straight-line method