Sabby Inc. issued a $1 million bond at 10% for 5 years to finance a project. The bonds were issued on January 1, 2014. The bond pays interest annually on January 1. The bonds are priced to yield 8%. The PV tables can be used to calculate present values. The company used effective interest method.

Required:

1. Calculate the proceeds (price) that Sabby would receive for the bond on January I, 201t. (2 marks)

2. Prepare a bond amortization schedule up to and including January 1, 2018, using the

effective interest method. (3 marks)

3. prepare the journal entries to record the initial sale of the bond on January 1 , 2014 and the accrual on December 31, 2014. (5 marks)

4. Assume that on July 1, 2017, Sabby decides to retire 35% of the bonds for $780,000

1. Prepare the journal entry to pay out the interest to investors at July 1, 2017 due to the bond retirement (2 marks)

2. Prepare the journal entry for the bond retirement on July 1, 2017 (3 marks)