On July 1, 2015, Linux Corporation, a wholesaler of electronics equipment, issued $45,000,000 of 10-year, 5% bonds at an effective interest rate of 7%, receiving cash of $38,604,600. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Instructions
1. Journalize the entry to record the amount of cash proceeds from the sale of the bonds.
2. Journalize the entries to record the following:
a. The first semiannual interest payment on December 31, 2015, and the amortization of the bond discount, using the straight-line method.
b. The interest payment on June 30, 2016, and the amortization of the bond discount, using the straight-line method.
3. Determine the total interest expense for 2015.
4. Will the bond proceeds always be less than the principal amount of the bonds when the contract rate is less than the market rate of interest?
5. Compute the price of $38,604,600 received for the bonds by using the tables of present value in Appendix E at the end of the text.