Legacy issues $345,000 of 5%, four-year bonds dated January 1, 2009, that pays interest semiannually on June 30 and December 31. They are issued at $332,888 and their market rate is 6% at the issue date.
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 10.7 for the bonds’ first two years.
4. Prepare the journal entries to record the first two interest payments.
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.