Chapter 10, Problem 10.7E

Preparing Journal Entries to Record Issuance of Bonds and Payment of Interest

On January 1, Applied Technologies Corporation (ATC) issued $500,000 in bonds that mature in 10 years. The bonds have a stated interest rate of 10 percent. When the bonds were issued, the market interest rate was 10 percent. The bonds pay interest once per year on December 31.

Required:

1. 1. Determine the price at which the bonds were issued and the amount that ATC received at issuance.
2. 2. Prepare the journal entry to record the bond issuance.
3. 3. Prepare the journal entry to record the first interest payment on December 31 assuming no interest has been accrued earlier in the year.