Legacy issues $550,000 of 9.5%, four-year bonds dated January 1, 2015, that pay

Question

Legacy issues $550,000 of 9.5%, four-year bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. They are issued at $507,301 and their market rate is 12% at the issue date.Prepare the journal entries to record the first two interest payments.1.Record the interest payment and amortization on June 30, 2015. 2.Record the interest payment and amortization on December 31, 2015.

Legacy issues $550,000 of 9.5%, four-year bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. They are issued at $507,301 and their market rate is 12% at the issue date.Prepare the journal entries to record the first two interest payments.1.Record the interest payment and amortization on June 30, 2015. 2.Record the interest payment and amortization on December 31, 2015.

Explanation / Answer

Jun-30-2015 Interest expense 30438 507301*12%/2          Discount on bonds payable 4313          Cash 26125 =550000*9.5%/2 Dec-31-15 Interest expense 30697 (507301+4313)*12%/2          Discount on bonds payable 4572          Cash 26125 =550000*9.5%/2 It is assumed effective interest method is used

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