Gomez issues $240,000 of 6%, 15-year bonds dated January 1, 2021, 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 14.7 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 14.7

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EXHIBIT 14.7 Semiannual Unamortized Carrying Period-End Discount Value Straight-Line Amortization of Bond Discount (0) 12/31/2021.... $3,600 $ 96,400 (1) 6/30/2022.... 2,700 97,300 (2) 12/31/2022 ... 1,800 98,200 (3) 6/30/2023 900 99,100 (4) 12/31/2023 .... 100,000 The columns always sum to par value for discount bonds.