On December 31, 2010, Mugaboo Corp. issues 7%, 10-year convertible bonds payable with a maturity value of $3,000,000. The semiannual interest dates are June 30 and December 31. The market interest rate is 8%, and the issue price of the bonds is 93.165. Mugaboo Corp. amortizes bonds by the effective-interest method.

Requirements
1. Prepare an effective-interest method amortization table for the first four semiannual interest periods.
2. Journalize the following transactions:
a. Issuance of the bonds on December 31, 2010. Credit Convertible Bonds Payable.
b. Payment of interest and amortization of the bonds on June 30, 2011.
c. Payment of interest and amortization of the bonds on December 31, 2011.
d. Conversion by the bondholders on July 1, 2012, of bonds with face value of $1,200,000 into 40,000 shares of Mugaboo Corp.’s $1-par common stock.
3. Show how Mugaboo Corp. would report the remaining bonds payable on its balance sheet at December 31, 2012.