Problem:
Titania Co. sells $406,700 of 12% bonds on June 1, 2014. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2018. The bonds yield 8%. On October 1, 2015, Titania buys back $127,500 worth of bonds for $134,120 (includes accrued interest).
Required:
Question 1: Prepare a bond amortization schedule using the effective-interest method for discount and premium amortization.
Question 2: Amortize premium or discount on interest dates and at year-end.
Question 3: Prepare all of the relevant journal entries from the time of sale until the date indicated. Give entries through December 1, 2016. (Assume that no reversing entries were made.)
Note: Show supporting computations in good form.