On January 1, 2017, Jade SA issued 2,000,000 face value, 7%, 10-year bonds at 2,147,202. This price resulted in a 6% effective-interest rate on the bonds. Jade uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on each January 1.

(a) Assuming the bonds are redeemed at maturity, what is the total amount of interest expense to be

recognized over the life of the bonds? Show your work.

(b)Assume Jade has an annual accounting period ending the end of February.

1) Prepare the AJE required on February 28, 2017.

2) Prepare the journal entry to record the payment of interest on January 1, 2018.

3) What is the carrying value of the bonds after the first interest payment on January 1, 2018?

(c)Assume that after interest is paid on January 1, 2018, Jade redeems the bonds at 98.

1) Prepare the journal entry to record the redemption.

2) Was the market interest rate on the date of redemption greater than, less than, or equal to 7%?

Explain your answer.

3) Using a residual analysis, explain why a gain/loss on redemption must be recognized; also

explain where on the SOCI the gain/loss would appear.