Vasily Inc. sold 20-year bonds on January 1, 2016. The face value of the bonds was $100,000, and they carry a 9% stated rate of interest, which is paid on December 31 of every year. Vasily received $94,950 in return for the issuance of the bonds when the market rate was 10%. Any premium or discount is amortized using the effective interest method.

Required:

1. Prepare the journal entry to record the sale of the bonds on January 1, 2016. How does this entry affect the accounting equation? Prepare a proper balance sheet presentation for January 1, 2016.

2. Prepare the journal entry to record interest expense on December 31, 2016. How does this entry affect the accounting equation? Prepare a proper balance sheet presentation for December 31, 2016.