P14-3 Premium Amortization Schedule with Retirement BeforeMaturity The Dorset Corporation issued $600,000 of 13% bonds onJanuary 1, 2009 for $614, 752.24. They are due December 31,2011,were issued to yield 12%, and pay interest semiannually onJune 30 and December 31. The company uses the effective interestmethod.

1. Prepare a bond interest expense and premium amortizationschedule.

2. Assume the company retired the bonds on September 30, 2011for $630,000, which includes accrued interest. Prepare the journalentry to record the bonds retirement.

P14-9 Bonds with Detachable Warrants On January 1, 2010,the London Corporation issued $500,000 of 11.5% bonds due January1, 2020, at 102. The bonds pay interest semiannually on June 30 andDecember 31. Each $1,000 bond 20 warrants, and the exchange of twowarrants allowed the holder to acquire one share of $10 par commonstock for $50. Shortly after the time of issue, the bonds werequoted at 98 ex rights and each individual warrant was quoted at$5. Subsequently, on March 31, 2010, 8,000 rights wereexercised.

1. Prepare the journal entry to record the bond issue.

2. Prepare the journal entries on March 31, 2010 to recordthe exchange of the warrants for common shares.

P14-12 Notes receivable On January 1, 2010, the SomervilleCorporation sold a used truck to the Cornelius Company and accepteda $28,000 non-interest-bearing note due January 1, 2013. Somervillecarried the truck on its books at a cost of $30,000 and a currentbook value of $23,000. Neither the fair value of the truck nor thenote was available at the time of the sale; however,Corneliuss incremental borrowing rate was 12%.

1. Prepare the journal entries on Somervilles books torecord:

a. The sale of the truck

b. The related adjusting entries on December31, 2010, 2011, and 2012

c. The collection of the note on January 1,2013

2. Prepare the notes receivable portion of SomervillesDecember 31, 2010, 2011, and 2012 balance sheets.