The Lexington Company issues $500,000 of 9% bonds on April 1, 20x1. The bonds pay interest on October 1 and April 1. The maturity date of the bonds is April 1, 20x5. The bonds yield 8%. [NOTE: The effective interest method is used to amortize the bond premium or discount.] On April 1, 20x3, Lexington Company exercises its call option and buys back all of its bonds at a price of 101.

REQUIRED: 1) Using the effective interest method, construct a bond amortization schedule for the full term of the bond (April 1, 20x1 through April 1, 20x5). [NOTE: Use EXCEL to calculate the issuance price of the bond and to prepare the amortization schedule.]

2) Prepare all journal entries from the time of issuance through April 1, 20x3.