Exercise 1

Celine Dion Company issued $900,000 of 10%, 20-year bonds on January 1, 2014, at 102. Interest is payable semiannually on July 1 and January 1. Celine Dion Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%.

Prepare the journal entries to record the following. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(a) The issuance of the bonds.

(b) The payment of interest and related amortization on July 1, 2014.

(c) The accrual of interest and the related amortization on December 31, 2014.

Exercise 2

Matt Perry, Inc. had outstanding $6,107,000 of 12% bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued $9,106,000 of 8%, 15-year bonds (interest payable July 1 and January 1) at 99. A portion of the proceeds was used to call the 12% bonds at 103 on August 1. Unamortized bond discount and issue cost applicable to the 12% bonds were $125,000 and $36,900, respectively.

Prepare the journal entries necessary to record issue of the new bonds and the refunding of the bonds. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)