Calculating and recording bonds when stated rate and market rate are different [20—25 min]
Tranquility is authorized to issue 5%, 10-year bonds payable. On January 2, 2011, when the marker interest rate is 6%, the company issues $300,000 of the bonds and receives cash of $277,785. Tranquility amortizes bond discount by the effective- interest method. Interest dates are January 2 and July 2.
Requirements
1. Prepare an amortization table for the first two semiannual interest periods. Follow the format of Exhibit 10A-3.
2. Journalize the issuance of the bonds payable and the First semiannual interest payment on July 2.
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