Mack Corporation produces and sells sporting equipment. To finance development of a wakeboard line, Mack Corporation issued $5,000,000 of 10-year, 7% bonds on June 1, 2015. The bonds pay interest on June 1 and were issued at an effective interest rate of 6.5%, resulting in Mack Corporation receiving cash of $5,179,720.76. The bond premium is amortized using the effective interest method of amortization.
a. Journalize the entries to record the following:
1. Sale of the bonds on June 1, 2015.
2. Adjusting entry for interest expense at the December 31 year-end.
3. First annual interest payment and premium amortization.
b. Show the reporting of the liabilities related to the bonds on the balance sheet at December 31, 2015, rounding amounts to the nearest whole dollar.