Bond Interest and Premium or Discount Amortization
Assume that $200,000 of Baker School District 6% bonds are sold on the bond issue date for $185,788. Interest is payable semiannually, and the bonds mature in 10 years. The purchase price provides a return of 7% on the investment.
1. What entries would be made on the investor’s books for the receipt of the first two interest payments, assuming premium or discount amortization on each interest date by (a) the straight line method and (b) the effective interest method? (Round to the nearest dollar.)
2. What entries would be made on Baker School District’s books to record the first two interest payments, assuming premium or discount amortization on each interest date by (a) the straight line method and (b) the effective interest method? (Round to the nearest dollar.)