[lilyrose]

may 1, '04

bonds payable w/ a par value of $700,000 which are dated jan 1, 2004 are sold at 106 plus acrued interest. They are coupon bonds, bear interest at 12% (payable annually at jan 1) and mature jan 1, 2014. (use interest expense account for accrued interest).

Dec 31

adjusting entries are made to record the accrued interest on the bonds and the amortization of the proper amount of premium. (use straight line amortization)

Jan 1, '05

interest on the bonds is paid

April 1

bonds of par value of $420,000 are purchased at 102 plus accrued interest and retired. (bond premium is to be amortized only at the end of each year)

Dec 31

adjusting entries are made to record the accrued interest on the bonds and the proper amount of premium amortized.

INSTRUCTIONS:
Prepare journal entries for the transaction above.