Interest Payments and Interest Expense for Bonds (Straight Line)

Robson Manufacturing sold 20 -year bonds with a total face amount of \(\$ 1,000,000\) and a stated rate of \(7.5 \%\). The bonds sold for \(\$ 1,080,000\) on December 31,2018 , and pay interest semiannually on June 30 and December 31. Robson Manufacturing uses the straight-line method of amortization.

\section*{Required:}

1. Prepare the entry to recognize the sale of the bonds.

2. Determine the amount of the semiannual interest payment required by the bonds.

3. Prepare the journal entry made by Robson at June 30, 2019, to recognize the interest expense and an interest payment, using straight line interest amortization.

4. Determine the amount of interest expense for 2019 .

5. CONCEPTUAL CONNECTION If Robson issued bonds with a variable interest rate, would you expect the rate to increase, decrease, or stay the same? Why?

6. CONCEPTUAL CONNECTION What should Robson consider in deciding whether to use YOUDECIDE a fixed or variable rate?

\section*{OBJECTIVE 3 Exercise