Snodgrass Corporation wholesales oil and grease products to equipment manufacturers. On March 1, 2006, Snodgrass Corporation issued $7,500,000 of five-year, 11% bonds at an effective interest rate of 10%, receiving cash of $7,789,543. Interest is payable semiannually on March 1 and September 1. Snodgrass Corporation’s fiscal year begins on March 1.
a. Journalize the entries to record the following:
1. First interest payment on September 1, 2006. (Amortization of premium is to be recorded annually.)
2. Second interest payment on March 1, 2007.
3. Amortization of premium at the end of the first year, using the interest method. (Round to the nearest dollar.)
b. Determine the bond interest expense for the first year.