Legacy issues $740,000 of 7.5%, four-year bonds dated January 1, 2015, that pay

Question

Legacy issues $740,000 of 7.5%, four-year bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. They are issued at $680,186 and their market rate is 10% at the issue date. ReferenceseBook & Resources

Prepare the January 1, 2015, journal entry to record the bonds' issuance.

Determine the total bond interest expense to be recognized over the bonds' life.

Amount repaid:

par value at maturity

total repaid

less amount borrowed

3. prepare a straight line amortization table for the bonds frist 2 years

01/01/15

06/30/15

12/31/15

06/30/16

12/31/16

4. Prepare the journal entries to record the first two interest payments

      

1.

Prepare the January 1, 2015, journal entry to record the bonds' issuance.

.2.

Determine the total bond interest expense to be recognized over the bonds' life.

Amount repaid:

par value at maturity

total repaid

less amount borrowed

3. prepare a straight line amortization table for the bonds frist 2 years

01/01/15

06/30/15

12/31/15

06/30/16

12/31/16

4. Prepare the journal entries to record the first two interest payments

      

Explanation / Answer

1) Journal entry for issuance

Cash Dr $ 680,186

Discount on bond payable Dr $ 59,814

7.5% Bond payable Cr $ 740,000

2) Total interest expense to be recognised

= $ 740,000 X 7.50% X 4 years + Discount on issue

= 222,200 + 59,814

= 281,814

3) Straight line amortization bond

Note = Discount to be amortized = 59,814 / 4 = 14,953.5 / 2 = 7,476.75

4) Journal entry for interest

06.30.2015

Interest Expense Dr $ 35,226.75

Discount on Issue Cr $ 7,476.75

Cash Cr $ 27,750

12.31.2015

Interest Expense Dr $ 35,226.75

Discount on Issue Cr $ 7,476.75

Cash Cr $ 27,750

Dates Opening Discount Discount Amortized Closing Discount 01.01.2015 59,814 59,814 06.30.2015 59,814 7,476.75 52,337.25 12.31.2015 52,337.25 7,476.75 44,860.50 06.30.2016 44,860.50 7,476.75 37,383.75 12.31.2016 37,383.75 7,476.75 29,907

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