On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The journal entry to record the first interest payment using straight-line amortization is:

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The first interest payment using straight-line amortization is calculated as (Par Value - Selling Price) / (Number of interest periods * Par Value), which in this case is ($400,000 - $383,793) / (10 * $400,000) = $1,620.70. This amount is added to the interest payment of ($400,000 * 7% / 2) = $14,000, resulting in a total interest expense of $15,620.70. The discount on bonds payable account is also reduced by the amount of discount amortization. Therefore, the journal entry is: Debit Interest Expense $15,620.70; credit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00.

On January 1, a Company Issues Bonds Dated January 1