A company issued 10-year, 9% bonds with a par value of $500,000 when the market rate was 9.5%. The company received $484,087 in cash proceeds. Using the effective interest method, prepare the issuer's journal entry to record the first semiannual interest payment and the amortization of any bond discount or premium.
What will be an ideal response?
| Bond Interest Expense | 22,994 |
| Discount on Bonds Payable | 494 |
| Cash | 22,500 |
Cash payment: $500,000 * 9% * 1/2 year = $22,500; Interest expense: $484,087 * 9.5% * 1/2 year = $22,994; Discount amortized: $22,994 - $22,500 = $494
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What will be an ideal response?