Refer to the bond details in Problem 10-5A.

Legacy issues $325,000 of 5%, four-year bonds dated January 1, 2018, that pay interest semiannually on June 30 and December 31. They are issued at $292,181, and their market rate is 8% at the issue date.

Required

1. Prepare the January 1, 2018, journal entry to record the bonds? issuance.

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

3. Prepare an effective interest amortization table like the one in Exhibit 10B.1 for the bonds? first two years.

4. Prepare the journal entries to record the first two interest payments.

Transcribed Image Text:

Exhibit 10B.1 Effective Interest Amortization of Bond Discount Bonds: $100,000 Par Valua, Somlannual Intorost Payments, Two Yoar Lifa, 4% Semiannual Contract Rate, 5.0155% Semlannual Market Rate (A) Cash (E) (B) Bond (9 (D) Semiannual Interest Interest Interest Discount Unamortized Discount Carrying Valuo Paid Exponso Amortization Carryng value Perlod-End K.x $100,000 Prior (D)-C) $100.000 - (D) 5.0IS5% x Prlor e (E) - (A) S90000 S100000 $ 96,400 12/312018 (0) $3,600 DORS $ 4,000 $ 835- 2,765 6/30/2019 -$ 4,835 (1) (2) (3) 97,235 12/31/2019 4,000 4,877 877 1,888 98,112 S96,000 6302020 12/32020 6/30/2020 4.921 921 99.033 4,000 967 (4) 12/31/2020 4000 4967 967 100,000 $16,000 $19,600 $3,600 Column (A) is the par vale (3100.000) multi plied ty the semiennual conact rate (4%). Column (B) is the prior period's carrying value auliplied by the semianmuel mauket rake (5.0155%). Column (C) is the differe nce between iaterest peid and boad interest expense, or ((B)- (A). Colunun D) is de prior period's unanKrtied disxouut less le curcat pericd's discout anoitizeticn. Column (E) is the porvalne less anomoried discourt, or [S100,000-(D)). Bondn Fayable 127312018 100 000 302019 131/100 6/3000 1Y31/2020 100,000 1211/2000 Discount on Bende Payable 123L2011 3600 a0/20 19 835 1231/2019 877 63002) 921 1231) 67 123L2020 June 30, 2019 4.835 -Bond Interest Expense Discourt on Bonds Payable B35 Cash... 4,000 - Record semioanuaf interest ond discouwnt amortization (effective interest method.