The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:

2016

July 1 Issued $74,000,000 of 20-year, 11% callable bonds dated July 1, 2016, at a market (effective) rate of 13%, receiving cash of $63,532,267. Interest is payable semiannually on December 31 and June 30.

Oct. 1 Borrowed $200,000 by issuing a six-year, 6% installment note to Nicks Bank. The note requires annual payments of $40,673, with the first payment occurring on September 30, 2017.

Dec. 31 Accrued $3,000 of interest on the installment note. The interest is payable on the date of the next installment note payment.

31 Paid the semiannual interest on the bonds. The bond discount amortization of $261,693 is combined with the semiannual interest payment.

31 Closed the interest expense account.

2017

June 30 Paid the semiannual interest on the bonds. The bond discount amortization of $261,693 is combined with the semiannual interest payment.

Sept. 30 Paid the annual payment on the note, which consisted of interest of $12,000 and principal of $28,673.

Dec. 31 Accrued $2,570 of interest on the installment note. The interest is payable on the date of the next installment note payment.

31 Paid the semiannual interest on the bonds. The bond discount amortization of $261,693 is combined with the semiannual interest payment.

31 Closed the interest expense account.

2018

June 30 Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $9,420,961 after payment of interest and amortization of discount have been recorded. (Record the redemption only.)

Sept. 30 Paid the second annual payment on the note, which consisted of interest of $10,280 and principal of $30,393.

Required:

1. Journalize the entries to record the foregoing transactions. Round all amounts to the nearest dollar. Be sure to include the year in the date for the entries. Refer to the Chart of Accounts for exact wording of account titles.

2. Indicate the amount of the interest expense in (a) 2016 and (b) 2017.

3. Determine the carrying amount of the bonds as of December 31, 2017.

CHART OF ACCOUNTS

Winklevoss Inc.

ASSETS

110Cash

111Petty Cash

121Accounts Receivable

122Allowance for Doubtful Accounts

126Interest Receivable

127Notes Receivable

131Merchandise Inventory

141Office Supplies

142Store Supplies

151Prepaid Insurance

191Land

192Store Equipment

193Accumulated Depreciation-Store Equipment

194Office Equipment

195Accumulated Depreciation-Office Equipment

LIABILITIES

210Accounts Payable

221Salaries Payable

231Sales Tax Payable

232Interest Payable

241Notes Payable

251Bonds Payable

252Discount on Bonds Payable

253Premium on Bonds Payable

EQUITY

311Common Stock

312Paid-In Capital in Excess of Par-Common Stock

315Treasury Stock

321Preferred Stock

322Paid-In Capital in Excess of Par-Preferred Stock

331Paid-In Capital from Sale of Treasury Stock

340Retained Earnings

351Cash Dividends

352Stock Dividends

390Income Summary

REVENUE

410Sales

610Interest Revenue

611Gain on Redemption of Bonds

EXPENSES

510Cost of Merchandise Sold

515Credit Card Expense

516Cash Short and Over

521Sales Salaries Expense

522Office Salaries Expense

531Advertising Expense

532Delivery Expense

533Repairs Expense

534Selling Expenses

535Rent Expense

536Insurance Expense

537Office Supplies Expense

538Store Supplies Expense

541Bad Debt Expense

561Depreciation Expense-Store Equipment

562Depreciation Expense-Office Equipment

590Miscellaneous Expense

710Interest Expense

711Loss on Redemption of Bonds