On January 1, 2015, Crozier Company, a privately held company, sold $20,000,000 of five-year, 5% bonds to finance its expansion of operations. The bonds, which pay interest on June 30 and December 31, were issued at an effective interest rate of 6%, resulting in Crozier Company receiving cash of $19,146,980. The bond discount is amortized using the straight-line method of amortization.
a. Journalize the entries to record the following:
1. Sale of the bonds.
2. First semiannual interest payment and discount amortization.
3. Adjusting entry for interest expense at the October 31 year-end.
4. Second semiannual interest payment and discount amortization.
b. Determine the amount of bond interest expense for the fiscal year ended October 31, 2015.