Question - On April 1, 2016 Alpha Company sells $1,000,000 face value of 8% five year bonds which call for semiannual interest payments. The bonds are dated April 1, 2016 so these bonds are issued on an interest date. The market rate at the date of issue is 6%. Because the market rate is less than the bond will pay investors, the bond will sell for a premium. The total bond premium is $85,298. Use the straight line method of amortization of the bond premium. For simplicity, use a 360-day year and 3 day months for all calculations.
1. Record the journal entries for the issuance of the bonds
2. Record the journal entries for the first interest payment due on October 1, 2016. Assume that interest has not been accrued at each month end.