On January 1, 2020, XYZ Co. issued a bond with a $400,000 par (face) value. The bond is a 5-year bond and will mature on December 31, 2025. The bond has a contract rate of interest of 5% and interest is paid semi-annually on June 30 and December 31 of each year. On January 1, 2020, the market rate of interest for bonds was 6%. The issue price of the bond was $382,942. The journal entry to record issuance of the bond would be:

Debit Credit

Cash $382,942

Discount on B/P 17,058

Bonds Payable $400,000

REQUIRED:

Using Professor A's recommended approach, prepare the journal entry to record the first interest payment on XYZ Co.'s bond on June 30, 2020 using the straight-line method. (Show your work in each step using the recommended approach.)

Professor A's recommended five-step approach:

1. Calculate the interest payment amount (Interest = Principle X Rate X Time).
2. Immediately credit Cash for the calculated interest payment amount.
3. Fill in the account names for the rest of the journal entry. You will always have a debit to Bond Interest Expense. If Discount on B/P was debited in the bond issuance entry, you will have a credit to Discount on B/P in this entry. If Premium on B/P was credited in the bond issuance entry, you will have a debit to Premium on B/P in this entry.
4. To determine the amount of the credit to Discount on B/P or debit to Premium on B/P, divide the total discount or premium amount by the number of interest payments.
5. To determine the amount of the debit to Bond Interest Expense, PLUG IT (Make the entry balance).