Gary Corporation wholesales bike parts to bicycle manufacturers. On March 1, 2015, the first day of its first fiscal year, Gary Corporation issued $8,000,000 of five-year, 7% bonds at an effective interest rate of 6%, receiving cash of $8,341,208.11. Interest is payable semiannually on March 1 and September 1, and the company uses the effective interest method for bond premium amortization. Gary Corporation has a January 31 year-end.
a. Journalize the entries to record the following:
1. Sale of the bonds.
2. First semiannual interest payment and premium amortization on September 1, 2015.
3. Accrual of interest on January 31, 2016.
4. Second semiannual interest payment and premium amortization on March 1, 2016.
b. Determine the amount of the bond interest expense for the year ended January 31, 2016.