On March 1, 2006, Fulton Corporation issued $5,000,000, five-year, 11% bonds at an effective interest rate of 10%, receiving cash proceeds of $5,193,028.50. Interest is paid semiannually on March 1 and September 1. Fulton Corporation’s fiscal year begins on March 1. The company uses the effective interest rate method to amortize bond discounts and premiums.
a. Using the present value tables in Appendix A, journalize the entries to record the following:
1. Sale of the bonds.
2. First semiannual interest payment on September 1, 2006 (amortization of premium is to be recorded semiannually using the interest method of amortization).
3. Second semiannual interest payment on March 1, 2007.
b. Compute the amount of bond interest expense for the first year. (Round to the nearest penny.)