Question

Legacy issues $630,000 of 9.0%, four-year bonds dated January 1, 2018, that pay interest semiannually on June 30 and December 31. They are issued at $571,310, and their market rate is 12% at the issue date. Required: 1. Are these bonds issued at a premium or a discount and how can you tell? 2. Prepare the January 1, 2018, journal entry to record the bonds' issuance. 3. Prepare an effective interest amortization table for the bonds. 4. Prepare the journal entries to record the first two interest payments. 5. Show how the bonds how and interest will be presented on the December 31,2018 financial statements.

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
Part 1
Bonds are issued at discount since issue price of $571,310 is less than $630,000.
Also market rate of interest is higher than stated rate of interest
Part 2
Date	Account	Debit	Credit
Jan 1 2018	Cash	$   571,310
	Discount on Bond payable	$      58,690
	Bonds Payable		$630,000
	(To record bonds issue)
Part 3
	Cash Payment $630,000*4.5%	Interst 6%	Discount	Balance
Jan 1 2018				$571,310
Jun 30 2018	$                                                      28,350	$      34,279	$    5,929	$577,239
Dec 31 2018	$                                                      28,350	$      34,634	$    6,284	$583,523
Jun 30 2019	$                                                      28,350	$      35,011	$    6,661	$590,184
Dec 31 2019	$                                                      28,350	$      35,411	$    7,061	$597,245
Jun 30 2020	$                                                      28,350	$      35,835	$    7,485	$604,730
Dec 31 2020	$                                                      28,350	$      36,284	$    7,934	$612,664
Jun 30 2021	$                                                      28,350	$      36,760	$    8,410	$621,074
Dec 31 2021	$                                                      28,350	$      37,264	$    8,926	$630,000
Part 4
Date	Account	Debit	Credit
Jun 30 2018	Interest Expense	$      34,279
	Discount on Bond Payable		$    5,929
	Cash		$ 28,350
	(To record interest payment)
Dec 31 2018	Interest Expense	$      34,634
	Discount on Bond Payable		$    6,284
	Cash		$ 28,350
	(To record interest payment)
Part 5	Balance Sheet
	Liabilities:
	Bond Payable	$   583,523
	Unamortized Discount on Bond Payable	$    -46,477	$537,046
	Income Statement
	Below Operating Income:
	Interest Expense		$ 68,913