On January 1, a company issued 10-year, 10% bonds payable with a par value of $500,000, and received $442,647 in cash proceeds. The market rate of interest at the date of issuance was 12%. The bonds pay interest semiannually on July 1 and January 1. The issuer uses the straight-line method for amortization. Prepare the issuer's journal entry to record the first semiannual interest payment on July 1.
What will be an ideal response?
| July 1 | Bond Interest Expense | 27,867.65 | ? |
| ? | Discount on Bonds Payable | ? | 2,867.65 |
| ? | Cash | ? | 25,000.00 |
Discount amortized: ($500,000 - $442,647)/20 semiannual periods = $2,867.65
Interest expense: $25,000.00 + $2,867.65 = $27,867.65
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