Calculating and recording bonds when stated rate and market rate are different [20-25 min]
Relaxation, Inc., is authorized to issue 14%, 10-year bonds payable. On January 2, 2012, when the market interest rate is 16%, the company issues $500,000 of the bonds and receives cash of $451,130. Relaxation 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
2. Journalize the issuance of the bonds payable and the first semiannual interest payment on July 2.
Effective-Interest Amortization of a Bond Discount
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