On December 31, 2012, when the market interest rate is 10%, O’Brien Realty, Co., issues $800,000 of 7.25%, 10-year bonds payable. The bonds pay interest semiannually.
Requirements
1. Determine the present value of the bonds at issuance.
2. Assume that the bonds are issued at the price computed in Requirement 1. Prepare an effective-interest method amortization table for the first two semiannual interest periods.
3. Using the amortization table prepared in Requirement 2, journalize issuance of the bonds and the first two interest payments.