Topspin Co. produces and sells synthetic string for tennis rackets. The following transactions were completed by Topspin Co., whose fiscal year is the calendar year:

2006

July 1 Issued $15,000,000 of five-year, 14% callable bonds dated July 1, 2006, at an effective rate of 12%. Interest is payable semiannually on December 31 and June 30.

Dec. 31 Paid the semiannual interest on the bonds.

31 Recorded bond premium amortization, which was determined by using the straight-line method.

2007

June 30 Paid the semiannual interest on the bonds. (Amortization of discount or premium is to be recorded annually.)

Dec. 31 Paid the semiannual interest on the bonds.

31 Recorded bond premium amortization, which was determined by using the straight-line method.

2008

July 1 Recorded the redemption of the bonds, which were called at 102. The balance in the bond premium account is $662,456.70 after the payment of interest and amortization of premium have been recorded. (Record the redemption only.)

Instructions

1. Calculate the selling price of the bond issue and the amount of the bond discount or premium at issuance. Use the present value tables in Appendix A.

2. Record the entries for the foregoing transactions.

3. Indicate the amount of the interest expense in (a) 2006 and (b) 2007.

4. Determine the carrying amount of the bonds as of December 31, 2007.