CP 10–2

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On January 1, 2015, the date of bond authorization, Nevada Inc. issued a 3-year, 12-per cent bond with a face value of $100,000 at 94. Semiannual interest is payable on June 30 and December 31.

Required:

1. Prepare journal entries to record the following transactions:
   1. The issuance of the bonds
   2. The interest payment on June 30, 2015
   3. The amortization of the discount on June 30, 2015 (use the straight-line method of amortization).
2. Calculate the amount of interest paid in cash during 2015 and the amount of interest expense that will appear in the 2015 income statement.
3. Prepare a partial balance sheet at December 31, 2015 showing how the bonds payable and the discount on the bonds should be shown on the balance sheet.
4. Prepare the journal entry to record the retirement of the bonds on December 31, 2017.
5. Prepare the journal entry on January 1, 2016, assuming the bonds were called at 102.