Make journal entries

• for the issuance of the bond
• for interest expense for Year 1 and Year 2
• for the amortization of premium for year 1 and year 2.
  1. The straight-line method
     1. Interest expense for year t

= interest payment for year t - amortization of premium for year t or + amortization of discount for year t

2. Amortization of discount or premium on BP for year t

= initial balance of discount or premium / # of years in the outstanding period

$7,387/5 years = $1,478/year

Interest expense 10,478

Cash 9,000

Discount on BP 1,478

Must make the above journal entries at the end of each year for 5 years