On January 1, 2021, Ledge Company issued 12% bonds dated January 1, with a face amount of $5,000,000. The bonds mature on Dec. 31, 2020 (20 years). For bonds of similar risk and maturity the market rate 10%. Interest is paid annually on December 31. Braxton Corporation purchased the entire bond issue. Ledge Company uses effective interest method and Braxton Corporation use straight line method for amortization of discount or premium.

Required:

1. For Ledge Company (Issuer)

a. Determine the issue price of the bonds at January 1, 2021.

2. Prepare the journal entry to record the issuance of the bonds on 1/1/21.
3. Prepare the journal entries to record interest in on December 31, 2021 and 2022.
4. Assume that entire bond issue is retired on January 1, 2036, at 103.
   1. Calculate the carrying value of the bonds on January 1, 2036.
   2. Determine the amount of gain or loss on the bond retirement.
   3. Prepare the journal entry for the bond retirement.

2. For Braxton Corporation

a. Prepare the journal entry to record the purchase of the bonds on 1/1/21.

b. Prepare the journal entry to record the interest payment on 12/31/21