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29 April, 21:28

Pretzelmania, Inc., issues 7%, 15-year bonds with a face amount of $70,000 for $63,948 on January 1, 2021. The market interest rate for bonds of similar risk and maturity is 8%. Interest is paid semiannually on June 30 and December 31. Record the bond issue and first interest payment on June 30, 2021. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field. Round your intermediate computations and final answers to the nearest whole dollar amount.)

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  1. 29 April, 21:57
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    1. Cash A/c Dr $63,948

    Discount on bonds payable A/c $6,052

    To Bonds payable A/c $70,000

    (Being the issuance of the bond is recorded)

    2. Interest expense A/c Dr $2,558

    To Discount on bonds payable A/c $108

    To Cash A/c $2,450

    (Being the first interest payment is recorded)

    Explanation:

    The journal entries are shown below:

    1. Cash A/c Dr $63,948

    Discount on bonds payable A/c $6,052

    To Bonds payable A/c $70,000

    (Being the issuance of the bond is recorded)

    2. Interest expense A/c Dr $2,558

    To Discount on bonds payable A/c $108

    To Cash A/c $2,450

    (Being the first interest payment is recorded)

    The computation is shown below:

    For interest expense

    = $63,948 * 8% * 6 months : 12 month

    = $2,558

    For cash A/c

    = $70,000 * 7% * 6 months : 12 month

    = $2,450
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