1. On January 1 of Year 1, Drum Line Airways issued $3,500,000 of par value bonds for $3,200,000. The bonds pay interest semiannually on January 1 and July 1. The contract rate of interest is 7% while the market rate of interest for similar bonds is 8%. The bond will mature in 30 years.
Prepare the following journal entries using both the straight line method and the effective yield method for: a) issuance of the bond. b) The first two interest payments. Hint: in total you should have 6 entries.
2. On January 1 of Year 1, Drum Line Airways issued $3,500,000 of par value bonds $3,800,000. The bonds pay interest semiannually on January 1 and July 1. The contract rate of interest is 8% while the market rate of interest for similar bonds is 7%. The bond will mature in 30 years.
Prepare the following journal entries using both the straight line method and the effective yield method for: a) issuance of the bond. b) The first two interest payments. Hint: in total you should have 6 entries.