a)Prepare journal entries for the following four events( use straight-line ammortization).
01/01/07 The def Co. issued $100,000, six year bonds, carrying a coupon rate of ten percent (10), interest payable annually on December 31 each year. The bonds were issued at an effective yield (market rate) of seven percent (7%). Assume that the net proceeds from the issue of the bond differed from the face value of the bond by $12,000.
12/31/07 Recognize the first interest payment.
12/31/08 Recognize the second interest payment.
01/01/09 Redeem (i.e. buy back) twenty percent (20%) of the bonds outstanding for $18,500.
b)Is it better for a company to issue bonds at a discount or at a premium? Explain your answer.
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