Part 1

As the controller of Lynbrook, Inc., you were asked to evaluate a potential bond issuance to raise funds to expend the companys operations. Lynbrook is considering issuing a $10 million 5- year, 12 percent bonds payable on June 30, 2020. Interest would be payable semiannually on December 31 and June 30. Bond discounts and premiums would be amortized at each interest payment date using the straight-line method. The company's fiscal year ends at December 31.

Requirement:

A. Prepare an amortization table for each of the 10 semiannual periods, under each of the following assumptions:

1. The bonds were issued at 98. (round to the nearest dollar.)

2. The bonds were issued at 101. (round to the nearest dollar.)

B. Prepare the journal entry to record the issuance of the bonds on June 30, 2020 if Lynbrook issues the bonds at 98.

c. Prepare the journal entries necessary to record the semiannual bond interest payments on December 31, 2020 and June 30, 2021, if the bonds were issued at 101.

Part 2

The long-range strategic budgeting process also called for Lynbrook to borrow $2,000,000 cash on January 1, 2020 from Wells Fargo by signing a ten-year 6% installment note. The note requires equal payments of principal and interest on December 31 each year in the amount of $271,736.

Required

1. Prepare the journal entries required by Lynbrook on the following dates:

a) December 31, 2020

b) December 31, 2021

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