Calculating and recording bonds when stated rate and market rate are different [20-25 min]...

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

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2. Journalize the issuance of the bonds payable and the first semiannual interest payment on July 2.

Effective-Interest Amortization of a Bond Discount