Part 1

As a result of the long-range strategic budgeting process that took place during the end of 2018, Lynbrook, Inc. decided to issue $5,000,000 of 8%, 15-year bonds on January 1, 2019. The bonds will pay interest semiannually on June 30 and December 31. Due to current conditions in the bond market, the market interest rate is 6%.

Required

1. Determine the issue price of the bonds (Market Value) on January 1, 2019. Once the issue price is determined, prepare the January 1, 2019, journal entry to record the bonds' issuance.

2. Prepare the journal entries to record the first two interest payments, using the straight-line method to amortize any discount or premium.

3. Determine the total bond interest expense to be recognized over the bonds' life.

Part 2

The long-range strategic budgeting process also called for Lynbrook to borrow $4,000,000 cash on January 1, 2019 from JP Morgan Chase, by signing a signing a five-year 8% installment note. The note requires equal payments of principal and interest on December 31 each year, in the amount of $1,001,826.

Required

1. Prepare the journal entries required by Lynbrook on the following dates: a) December 31, 2019

   b) December 31, 2020

2. Determine the total interest expense Lynbrook will recognize over the life of the note.