1. Swenson’s Incorporated issues a $400,000, 8%, 10-year mortgage note on December 31,2007. 2. On July 1, 2008, Tardis Company issued $4,000,000 face value, 8%, 10-year bonds at $3,501,514.This price

1.  Swenson’s Incorporated issues a $400,000, 8%, 10-year mortgage note on December 31,2007. The proceeds from the note are to be used in financing a new muffin accelerator research laboratory. The terms of the note provide for semiannual installment payments, exclusive of real estate taxes and insurance, of $29,433. Payments are due June 30 and December 31.

Instructions

(a) Prepare an installment payments schedule for the first 2 years.

(b) Prepare the entries for (1) the loan and (2) the first two installment payments.

(c) Show how the total mortgage liability should be reported on the balance sheet at December 31, 2008.

2.  On July 1, 2008, Tardis Company issued $4,000,000 face value, 8%, 10-year bonds at $3,501,514.This price resulted in an effective-interest rate of 10% on the bonds. Tardis uses the effective-interest method to amortize bond premium or discount. The bonds pay semiannual interest July 1 and January 1.

Instructions

(Round all computations to the nearest dollar.)

(a) Prepare the journal entries to record the following transactions.

     (1) The issuance of the bonds on July 1, 2008.

     (2) The accrual of interest and the amortization of the discount on December 31, 2008.

     (3) The payment of interest and the amortization of the discount on July 1, 2009, assuming no accrual of interest on June 30.

     (4) The accrual of interest and the amortization of the discount on December 31, 2009.

(b) Show the proper balance sheet presentation for the liability for bonds payable on the

December 31, 2009, balance sheet.