Legacy issues $325,000 of 5%, four-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. They are issued at $292,181, and their market rate is 8% at the issue date.

Required

1. Prepare the January 1, 2017, journal entry to record the bonds' issuance.

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

3. Prepare a straight-line amortization table like the one in Exhibit 14.7 for the bonds' first two years.

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

Analysis Component

5. Assume the market rate on January 1, 2017, is 4% instead of 8%. Without providing numbers, describe how this change affects the amounts reported on Legacy's financial statements.

Exhibit 14.7

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Bonds: $100,000 Par Value, Semiannual Interest Payments, Two-Year Life, 4% Semiannual Contract Rate, 5% Semiannual Market Rate 2 (B) (D) (A) (C) (E) Bond Cash Semiannual Interest Interest Discount Unamortized Carrying Expense Amortization Paid Discount Value Interest (в) - (А) Period-End 4% x $100, 000 5% × Prior (E) $100,000 – (D) Prior (D) – (C) (0) 12/31/2017 $ 96,454 $3,546 $ 4,000 $ 823 $ 4,823 2,723 (1) 6/30/2018 97,277 (2) 12/31/2018 864 1,859 4,000 4,864 98,141 6/30/2019 (3) 4,90 10 907 99,048 4,000 952 (4) 12/31/2019 4,000 4.952 952 100,000 11 $16,000 $3,546 $19.546 12