The following section is taken from Paynter balance sheet at December 31 2011.

The following section is taken from Paynter balance sheet at December 31 2011.

Current liabilities

Interest payable

$ 40000

Long-term liabilities

Bonds payable (8% due January 1 2015)

500000

Interest is payable annually on January 1. The bonds are callable on any annual interest date.

Instructions

(a) Journalize the payment of the bond interest on January 1 2012.

(b) Assume that on January 1 2012 after paying interest Paynter calls bonds having a face value of $200000. The call price is 103. Record the
redemption of the bonds.

(c) Prepare the adjusting entry on December 31 2012 to accrue the interest on the remaining bonds.