Legacy issues $ 325,000 of 5%, four year bonds dated January 1, 2013, that pay interest semiannually on June 30 and December 31. They are issued at $ 292,181 and their market rate is 8% at the issue date.
Required:
1. Prepare the January 1, 2013, journal entry to record the bonds issuance.
2. Determine the total bond interest expense to be recognized over the bonds life.
3. Prepare a straight line amortization table like the one in Exhibit 14.7 for the bonds first two years.
4. Prepare the journal entries to record the first two interest payments.
Analysis Component:
5. Assume the market rate on January 1, 2013, is 4% instead of 8%. Without providing numbers, describe how this change affects the amounts reported on Legacy s financial statements.