On May 1, 2014, Kuldo Inc. (Kuldo) issued a \($25,000,000\) bond with a 6.5 percent coupon rate and a maturity date of April 30, 2019. Interest will be paid semi-annually on April 30 and October 31. Kuldo’s year-end is December 31.

The effective interest rate for a bond of this type on May 1, 2014 was 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 May 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 interest payable on December 31, 2016. Make the entry assuming straight-line amortization.

e. Prepare the journal entry required to record the interest expense on April 30, 2017.
Assume Kuldo uses the straight-line amortization method.

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. Assume that Kuldo’s bond agreement allowed it to redeem the bond on April 30, 2017 for \($27,000,000\). Prepare the journal entry required to record early retirement of the bond.
h. Assume the role of a shareholder in Kuldo. How would you interpret the gain or loss that would be reported on Kuldo’s income statement as a result of the early retirement of the bond? Explain.