Canyon Canoe Company is considering raising additional capital for further expansion. The company wants to finance a new business venture into guided trips down the Amazon River in South America. Additionally, the company wants to add another building on their land to offer more services for local customers.
Canyon Canoe Company plans to raise the capital by issuing $210,000 of 7.5%, six-year bonds on January 2, 2020. The bonds pay interest semiannually on June 30 and December 31. The company receives $208,476 when the bonds are issued.
The company also issues a mortgage payable for $450,000 on January 2, 2020. The proceeds from the mortgage will be used to construct the new building. The mortgage requires annual payments of $45,000 plus interest for ten years, payable on December 31. The mortgage interest rate is 8%.
Requirements
1. Will the bonds issue at face value, a premium, or a discount?
2. Record the following transactions. Include dates and round to the nearest dollar. Omit explanations.
a. Cash received from the bond issue.
b. Cash received from the mortgage payable.
c. Semiannual bond interest payments for 2020. Amortize the premium or discount using the straight-line amortization method.
d. Payment on the mortgage payable for 2020.
3. Calculate the total interest expense incurred in 2020.