The following items pertain to the liabilities of Brent Foods. You may assume that Brent Foods began business on January 1, 2016; therefore, the beginning balance of all accounts was zero.

a. On January 1, 2016, Brent Foods issued bonds with a face value of $40,000. The bonds are due in five years and have a face interest rate of 8%. The market rate on January 1 for similar bonds was 10%. The bonds pay interest annually each December 31. Brent has chosen to use the effective interest method of amortization for any premium or discount on the bonds.

b. On January 1, 2017, Brent redeems its bonds payable at the specified redemption price of 102. Because this item occurs in 2017, it does not affect the balance sheet prepared for year-end 2016.

Required: 1. Prepare journal entries on December 31, 2016, for interest adjustment in (a).

2. Develop the Long-Term Liabilities section of Brent Foods balance sheet as of December 31, 2016. You do not need to consider the notes that accompany the balance sheet.

3. Calculate the gain or loss on the bond redemption for (b).