Bond Issue, Interest Payments, Effective Interest Rate Method. On January 1, 2016, Faxico, Inc. issued $ 4,500,000 par value, 8%, five- year bonds. Interest is payable semiannually each January 1 and July 1 with the first interest payment due at the end of the period on July 1, 2016. The market rate of interest on the date of the bond issue was 10%.
Required
a. Determine the issue price of the debt.
b. Prepare the amortization table for the bond issue, assuming that the effective interest rate method of amortization is used.
c. Prepare the journal entries to record the bond issue and the first interest entry. Assume the company uses a premium or discount account, if needed.