E$14-7($Amortization Schedule$-$Effective$-$Interest$)$ Assume the same information as E$14-6.$

Instructions

Set up a schedule of interest expense and discount amortization under the effective$-$interest method. $($Hint: the effective$-$interest rate must be computed$).$

P$14-2($Issuance and Retirement of Bonds$)$ Venezuela Co$.$ is building a new hockey arena at a cost of $$2,500,00.$ It received a downpayment of $$500,000$ from local businesses to support the project, and now needs to borrow $$2,000,000$ to complete the project. It therefore decides to issue $$2,000,000$ of $10\mathrm{.}5\%,10-$year bonds. These bonds were issued on January $1,2011,$ and pay interest annually on each January $1.$ The bonds yield $10\%.$ Venezuela paid $$50,000$ in bond issue costs related to the bond sale.

Instructions

$($a$)$ Prepare the journal entry to record the issuance of the bonds and the related bond issue costs incurred on January $1,2011.$

$($b$)$ Prepare a bond amortization schedule up to and including January $1,2015,$ using the effective$-$interest method.

$($c$)$ Assume that on July $1,2014,$ Venezuela Co$.$ retires half of the bonds at a cost of $$1,065,000$ plus accrued interest. Prepare the journal entry to record this retirement.