(Accounting for bonds, LO 3, 4) On September 1, 2004 Yone Ltd. (Yone) issued a

$4,000,000 bond with a 10% coupon rate and a maturity date of August 31, 2010.

Interest is paid annually on August 31. The effective interest rate for a bond of this type on September 1, 2004 was 8%. Yone’s year end is August 31.

Required:

a. What will be the proceeds from the bond issue?

b. Prepare the journal entry to record issue of the bond on September 1, 2004.

c. Prepare an amortization schedule using both the straight-line and effective interest methods for any premium or discount that arose on issue of the bond.

d. Prepare the journal entry required to record the interest expense and the interest payment to investors on August 31 of each year over the life of the bond.

Make the entries for both the straight-line and effective interest amortization methods.

e. Prepare the journal entry required to record the retirement of the bond on maturity.