Legacy issues $345,000 of 5%, four-year bonds dated January 1, 2009, that pay interest s...

Legacy issues $345,000 of 5%, four-year bonds dated January 1, 2009, that pay interest semiannually on

June 30 and December 31. They are issued at $332,888 and their market rate is 6% at the issue date.

Required

1. Prepare the January 1, 2009, journal entry to record the bonds’ issuance.

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

3. Prepare a straight-line amortization table like the one in Exhibit 14.7 for the bonds’ first two years.

4. Prepare the journal entries to record the first two interest payments.

Analysis Component

5. Assume the market rate on January 1, 2009, is 4% instead of 6%. Without providing numbers, describe

how this change affects the amounts reported on Legacy’s financial statements.