Gomez issues $240,000 of 6%, 15-year bonds dated January 1, 2020, that pay interest semiannually on June 30 and December 31. They are issued at $198,494 when the market rate is 8%.

Required

1. Prepare the January 1 journal entry to record the bonds’ issuance.

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

3. Prepare a straight-line amortization table like the one in Exhibit 10.7 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 at issuance is 4% instead of 8%. Without providing numbers, describe how this change affects the amounts reported on Gomez’s financial statements.

Exhibit 10.7

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Semlannual Unamortized Carrylng Perlod-End Discount Value (0) 12/31/2020 .... Straight-Line Amortization of $3,600 $ 96,400 Bond Discount (1) 6/30/2021 2,700 (2) 12/31/2021 97,300 1,800 (3) 6/30/2022 98,200 900 (4) 12/31/2022 99,100 100,000 The columns always sum to par value for discount bonds. Carrying value S100.000 S08.200 -$06 400 12/31/20 6/30/21 6/30/22 12/31/22 12/3/21