Answer:
Cash 680,186 debit
discount on BP 59,814 debit
Bonds payable 740,000 credit
--to record issuance of the bonds--
interest expense 34009.3 debit
discount on BP 6259.3 credit
cash 27750 credit
--to record first payment of the bonds--
Explanation:
procceds 680,186
face value <u> 740,000 </u>
discount on bonds payable 59,814
bond rate (semi-annually) 7.5% / 2 = 0.0375
market rate (semi-annually) 10% / 2 = 0.05
The first payment will be:
<u><em>cash proceeds:</em></u><em> face value x bond rate:</em>
740,000 x 0.0375 = 27,750
<u>interest expense:</u> <em>carrying value x market rate</em>
680,186 x 0.05 = 34,009.3
<u>amortization on discount on BP:</u>
34,009.3 - 27,750 = 6259.3
