Determine bonds payable amounts; amortize bonds by the straight-line method
Response to the following problem:
Moonlight Drive-Ins Ltd. borrowed money by issuing $2,000,000 of 4% bonds payable at 97.5 on July 1, 2014. The bonds are 10-year bonds and pay interest each January 1 and July 1.
1. How much cash did Moonlight receive when it issued the bonds payable? Journalize this transaction.
2. How much must Moonlight pay back at maturity? When is the maturity date?
3. How much cash interest will Moonlight pay each six months?
4. How much interest expense will Moonlight report each six months? Assume the straightline amortization method. Journalize the entries for accrual of interest on December 31, 2014, and payment of interest on January 1, 2015.