Radcliff Corporation issued a 10% $80,000 bond on January 1, 2013 due on January 1, 2017. Interest is payable each July 1 and January 1. The company received $75,031.96 for the bond and the required effective interest rate was 12%.

Instructions

(a) Calculate the discount on the bond.

(b) Prepare a bond amortization schedule for the 4 years. Be sure to clearly show the semiannual interest payments.

(c) Prepare the necessary journal entries to show:

i. The issuance of the bond on January 1, 2013

ii. Interest payments on July 1, 2013

iii. Interest payments on December 31, 2013

(d) What is the difference between a bond sold at a discount and a bond sold at a premium?

2.

On April 30, 2002, Company issued 8% bonds with a par value of $900,000 due in 20 years. They were issued at 82.8 to yield 10% and were callable at 102 at any date after April 30, 2010. Because of lower interest rates and a significant change in the company's credit rating, it was decided to call the entries issue on April 30, 2011, and to issue new bonds. New 6% bonds were sold in the amount of $1,200,000 at 112.5 to yield 5%; they mature in 20 years. Interest payment dates are October 31 and April 30 for both and new bonds.

Instructions

(a) Prepare journal entries to record the retirement of the old issue and the sale of the new issue on April 30, 2011. Unamortized discount is $118,470. (20 marks)

(b) Prepare the entry required on October 31, 2011, to record the payment of the first 6 months' interest and the amortization of premium on the bonds. (10 marks)