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Spring Water Company Ltd. needed to raise $5.8 million of additional capital to finance the expansion of its bottled water company. After consulting an investment banker and the company's VP Finance, it decided to issue bonds. The bonds had a maturity value of $5.8 million and an annual interest rate of 4%, paid interest semi-annually on June 30 and December 31, and matured on December 31, 2017. The bonds were issued on January 1, 2008, for $5,347,914, which represented a yield of 5%.
Calculate the interest expense for the first year and show the journal entries to record the interest expense and the corresponding interest payments.
Total interest expense for year 1: $ __________
June 30 Interest expense __________
Discount on bonds payable _________
Dec. 31 Interest expense _________
Discount on bonds payable ________
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The expert calculates interest expenses and prepares journal entries.
Solution is provided in a separate excel file attached. It contains the following parts.
1 Data provided
2 Amortization Table-Effective interest rate method of amortization
Journal entries for recording Bond transaction and amortization of Discount on Effective rate method
Note 1 : Entry for amortization will be recorded in the same manner every semi annual interval in 20 ...
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