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On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 10% and the bonds are sold for $288,413. The journal entry to record the first interest payment using "straight-line" amortization is:

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Answer:

Journal Entry for First Interest Payment

Dr. Interest Expense     $14,658.7

Cr. Discount on Bond   $1,158.7

Cr. Cash                         $13,500

Explanation:

The bond is issued on discount when the bond issuance proceeds are less than the face value of the bond. The discount is expensed over the bond period until maturity. It is added to the interest expense value to expense it.

Discount on the bond = Face value - cash proceeds = $300,000 - $288,413 = $11,587

According to straight line amortization

Discount charged in the period = $11587 / 5 = $2,317.4 per year = $1,158.7 per six months

Cash payment of interest = $300,000 x 9% = $27,000 per year = $13,500 per six months

Total Interest Expense = $13,500 + $1,158.7 =

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