Legacy issues $650,000 of 5.0%, four-year bonds dated January 1, 2015, that pay

Question

Legacy issues $650,000 of 5.0%, four-year bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. They are issued at $584,361 and their market rate is 8% at the issue date.

1 Record the issue of bonds with a par value of $650,000 cash on January 1, 2015 at an issue price of $584,361.

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

3.Prepare a straight-line amortization table for the bonds' first two years.

4.Record the interest payment and amortization on June 30, 2015.

5.Record the interest payment and amortization on December 31, 2015.

Explanation / Answer

Journal Debit Credit Cash                  584,361 Discount on bond issue                    65,639 Bonds Payable           650,000 Bond interest 650000*2.5% 16250 semi-annually coupon 650000*4% 26000 Interest expense                    16,250 cash             16,250

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