On January 1, 2017, Michelin Company issued 12% 5 year bonds dated January 1, 2017, with a face amount of $20 million. The bonds pay interest semi-annually and mature on December 31, 2021 after 5 years. For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31.

Required:

a. Determine the price of the bonds at January 1, 2017.

b. Prepare the journal entry to record the bond issuance by Michelin on January 1, 2017.

c. Prepare the bond amortization schedule using the straight line method.

d. Prepare the bond amortization schedule using the effective interest method.

e. Prepare the journal entry to record interest on June 30, 2017, using the effective interest method.

f. Prepare the entries to record the transactions at maturity on December 31, 2021.

g. Suppose instead of waiting until the bonds matured, Michelin decided to call the bonds on December 31, 2018 at 101, what gain or loss would be recognized if the effective interest method had been used? Show entry.