Legacy issues $740,000 of 7.5%, four-year bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. They are issued at $680,186 and their market rate is 10% at the issue date.

Legacy issues $740,000 of 7.5%, four-year bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. They are issued at $680,186 and their market rate is 10% at the issue date.

Prepare the January 1, 2015, journal entry to record the bonds' issuance.

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

Explanation:

Eight payments of $27,750*	$	222,000
Par value at maturity		740,000
Total repaid		962,000
Less amount borrowed		(680,186)
Total bond interest expense	$	281,814

   

*Semiannual interest payment, computed as $740,000 × 0.075 × ½ year = $27,750.

Prepare a straight-line amortization table for the bonds' first two years.

Straight-line amortization table ($59,814 / 8 = $7,477)

Prepare the journal entries to record the first two interest payments

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