Luther Company borrowed money by issuing $2,500,000 of 4%
bonds payable at 101.8 on July 1,
2018. The bonds are five-year bonds and pay interest each
January 1 and July 1.
1. How much cash did Luther receive when it issued the
bonds payable? Journalize this transaction.
2. How much must Luther pay back at maturity? When is
the maturity date?
3. How much cash interest will Luther pay each six
months?
4. How much interest expense will Luther report each
six months? Use the straight-line amortization method. Journalize
the entries for the accrual of interest and the amortization of
premium on December 31, 2018, and payment of interest on January
1, 2019.