On August 1, 2014, Quilty Inc. (Quilty) issued a \($3,500,000\) bond with a 7 percent coupon rate and a maturity date of July 31, 2022.

Interest will be paid semi-annually on July 31 and January 31. Quilty’s year-end is December 31. The appropriate interest rate for a bond of this type on August 1, 2014 was 7.5 percent.

Required:

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

b. Prepare the journal entry to record the issue of the bond on August 1, 2014.

c. Prepare an amortization schedule using the straight-line method for any premium or discount that arose from the issue of the bond.

d. Prepare the journal entry required to accrue the interest expense and accrued interest payable on December 31, 2015.

e. Prepare the journal entry required to record the interest expense and the payment to investors on January 31, 2016.

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

Include the interest expense and amortization of any bond premium or discount in the entry.

g. On July 31, 2019, Quilty was able to buy back all the outstanding bonds on the open market for \($2,850,000\). Prepare the journal entry required to record early retirement of the bond.

h. Do you think that the decision to buy back the bonds early was a good one? Explain.