Q2: On June 30, 2017, Layton, Inc. sold $1,200,000 (face value) of bonds. The bonds are dated June 30, 2017, pay interest semi-annually on December 31 and June 30, and will mature on June 30, 2020. The following schedule was prepared by the accountant for 2017:

Semi-annual Interest Period

Dec 31, 2017

Instructions

Interest to Interest be Paid Expense

$36,000 $45,484

Amortization $9,484

Unamortized Amount $62,906 53,422

Bond Amortized cost $1,137,094 1,146,578

On the basis of the above information, answer the following questions. (Round your answer to the nearest dollar or percent.)

1. a) What is the contractual rate of interest for this bond issue? (1 mark)

2. b) What is the market rate of interest for this bond issue? (1 mark)

3. c) Prepare the journal entry to record the sale of the bond issue on June 30, 2017.

   (1 mark)

4. d) Prepare the journal entry to record the payment of interest and amortization on December 31, 2017 (2 marks)