Question

The following transactions were completed by Hobson Inc., whosefiscal year is the calendar year:
2010
July 1. Issued $18,000,000 of five-year, 10% callable bonds datedJuly 1, 2010, at an effective rate of 12%, receiving cash of$16,675,184. Interest is payable semiannually on December 31 andJune 30.
Oct. 1. Borrowed $400,000 as a 10-year, 7% installment note fromMarble Bank.
The note requires annual payments of $56,951, with the firstpayment occurring on September 30, 2011.
Dec. 31. Accrued $7,000 of interest on the installment note. Theinterest is payable on the date of the next installment notepayment.
31. Paid the semiannual interest on the bonds.
31. Recorded bond discount amortization of $132,482, which wasdetermined using the straight-line method.
31. Closed the interest expense account.
2011
June 30. Paid the semiannual interest on the bonds.
Sept. 30. Paid the annual payment on the note, which consisted ofinterest of $28,000 and principal of $28,951.
Dec. 31. Accrued $6,493 of interest on the installment note. Theinterest is payable on the date of the next installment notepayment.
31. Paid the semiannual interest on the bonds.
31. Recorded bond discount amortization of $264,964, which wasdetermined using the straight-line method.
31. Closed the interest expense account.
2012
June 30. Recorded the redemption of the bonds, which were called at97. The balance in the bond discount account is $794,888 afterpayment of interest and amortization of discount have beenrecorded. (Record the redemption only.)
Sept. 30. Paid the second annual payment on the note, whichconsisted of interest of
$25,973 and principal of $30,978.
Instructions
1. Journalize the entries to record the foregoingtransactions.
2. Indicate the amount of the interest expense in
(a) 2010 and
(b) 2011.
3. Determine the carrying amount of the bonds as of December 31,2011.