The following transactions were completed by Winklevoss Inc.,whose fiscal year is the calendar year:

Year 1

July 1 Issued $71,100,000 of 20-year, 12% callable bonds datedJuly 1, Year 1, at a market (effective) rate of 14%, receiving cashof $61,621,133. Interest is payable semiannually on December 31 andJune 30.

Oct. 1 Borrowed $250,000 by issuing a six-year, 5% installmentnote to Nicks Bank. The note requires annual payments of $49,254,with the first payment occurring on September 30, Year 2.

Dec. 31 Accrued $3,125 of interest on the installment note. Theinterest is payable on the date of the next installment notepayment.

31 Paid the semiannual interest on the bonds. The bond discountamortization of $236,972 is combined with the semiannual interestpayment.

Year 2

June 30 Paid the semiannual interest on the bonds. The bonddiscount amortization of $236,972 is combined with the semiannualinterest payment.

Sept. 30 Paid the annual payment on the note, which consisted ofinterest of $12,500 and principal of $36,754. Dec. 31

Accrued $2,666 of interest on the installment note. The interestis payable on the date of the next installment note payment.

31 Paid the semiannual interest on the bonds. The bond discountamortization of $236,972 is combined with the semiannual interestpayment.

Year 3

June 30 Recorded the redemption of the bonds, which were calledat 98. The balance in the bond discount account is $8,530,979 afterpayment of interest and amortization of discount have beenrecorded. Record the redemption only.

Sept. 30 Paid the second annual payment on the note, whichconsisted of interest of $10,662 and principal of $38,592.

Required:

1. Journalize the entries to record the foregoing transactions.Round all amounts to the nearest dollar. Refer to the Chart ofAccounts for exact wording of account titles.

2. Indicate the amount of the interest expense in (a) Year 1 and(b) Year 2.

3. Determine the carrying amount of the bonds as of December 31,Year 2.