A company issued 8%, 10-year bonds with a par value of $1,070,000 on January 1, at a selling price of $948,300 when the annual market interest rate is 10%. The company uses the effective interest amortization method. Interest is paid semiannually each June 30 and December 31.
Prepare an amortization table for the first two payment periods using the following format.
Prepare the journal entry to record the first semiannual interest payment.
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Amortization Table:
| Period | Beginning Balance | Interest Expense (10%) | Cash Paid (8%) | Amortization of Discount | Ending Balance |
|--------|-------------------|------------------------|----------------|--------------------------|----------------|
| 1 | $948,300 | $47,415 | $42,800 | $4,615 | $952,915 |
| 2 | $952,915 | $47,646 | $42,800 | $4,846 | $957,761 |
Journal Entry:
June 30 (First semiannual interest payment)
Interest Expense $47,415
Discount on Bonds Payable $4,615
Cash $42,800
Note: The interest expense is calculated as the beginning balance times the market interest rate (10%) divided by 2 (since it's semiannual). The cash paid is the par value times the stated interest rate (8%) divided by 2. The amortization of discount is the difference between the interest expense and the cash paid. The ending balance is the beginning balance plus the amortization of discount.
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