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Prepare journal entries for the following four events (use straight-line amortization). 01/01/07 The Def Co.

1. Prepare journal entries for the following four events (use straight-line amortization). 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. Is it better for a company to issue bonds at a discount or at a premium? Explain your answer

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