Part A (12 marks)

The company Unlimited Gain issues $2,000,000 face value of seven-year bonds on January 1, 2022 when the market interest rate is 5%. The bonds are sold for $1,884,272 and the bonds pay 4% interest annually. (Round to the nearest dollar)

Required:

i. Prepare the issuer's journal entry to record the issuance of the bond. (3 marks)

ii. Compute the total bond interest expense over the bonds life. (1 mark)

iii. Prepare an effective interest amortization table for the first two interest payment periods using the format shown below: (5 marks)

Annual Interest Period	Cash Interest Paid	Bond Interest Expense	Discount Amortization	Unamortized Discount	Carrying Amount

iv. Prepare the journal entry to record the first interest payment. (3 marks)

Part B (8 marks)

i. The company Sure Win makes an early redemption of bond for $315,000 on July 1, 2022. However, these bonds, with a par value of $300,000, were issued at a premium for $309,000 on the issue date. There is still a remaining unamortized amount of $3,000 of the premium on bonds payable right before the retirement.

(4 marks)

ii. Jackson Corporation is planning a $200,000 expansion to meet increasing demand for its product. Jackson Corporation is considering two plans to raise the money. Under Plan A, bonds with a contract rate of interest of 8% would be issued. Under Plan B, 10,000 additional ordinary shares would be issued at $20 per share. The corporation currently has 100,000 shares outstanding, and it expects to earn $300,000 per year before bond interest and income taxes. The net profit and return on investment for both plans is shown below:

	Plan A	Plan B
Earnings before bond interest and taxes	$ 300,000	$ 300,000
Bond interest expense	(16,000)
Income before taxes	$ 284,000	$ 300,000
Income taxes	(99,400)	(105,000)
Net profit	$ 184,600	$ 195,000
Equity	$2,000,000	$2,200,000
Return on Equity	9.23%	8.86%

Required:

Please compare the above two plans to raise the money. (4 marks)