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

2016

July 1. Issued $55,000,000 of 10-year, 9% callable bonds dated July 1, 2016, at a market (effective) rate of 7%, receiving cash of $62,817,040. Interest is payable semiannually on December 31 and June 30.

Oct. 1. Borrowed $450,000 by issuing a six-year, 8% installment note to Intexicon Bank.

The note requires annual payments of $97,342, with the first payment occurring on September 30, 2017.

Dec. 31. Accrued $9,000 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 $390,852 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 $390,852 is combined with the semiannual interest payment.

Sept. 30. Paid the annual payment on the note, which consisted of interest of $36,000 and principal of $61,342.

Dec. 31. Accrued $7,773 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 $390,852 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 103. The balance in the bond premium account is $6,253,632 after payment of interest and amortization of premium have been recorded. (Record the redemption only.)

Sept. 30. Paid the second annual payment on the note, which consisted of interest of $31,093 and principal of $66,249.

Instructions:

1. Journalize the entries to record the foregoing transactions.

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.