District Water Company issued 10-year bonds with a face value of $100,000 and a stated interest rate of 7.0%.

District Water Company issued 10-year bonds with a face value of $100,000 and a stated interest rate of 7.0%.
The bonds are dated April 1, 2016, and call for semiannual interest payments on each April 1 and October 1.
Due to market fluctuations, the bonds actually sold to yield 10.0% per year.

INSTRUCTIONS:
1. Compute the amount received for the bonds.
2. Compute the first interest and amortization amounts for the October 1, 2016, payment.
3. Prepare journal entries for the issuance of the bonds and for the first interest payment.
4. Compute the second interest and amortization amounts for the April 1, 2017, payment.

SOLUTION:
Face value	100,000
interest rate	7%
Yield to Maturity	10%
Years	10
coupon frequency	2

Amount received for the bond	82,172

2. First interest and amortization amounts:
First Interest amount for the October 1,2016	3,500
Interest Expenses	4,109
Amortization Amount	609

Date	Account Title	Debit	Credit
April 1 2016	Cash	82,172
	Discount on Bonds Payable	17,828
	8% Bonds Payable		100,000

October 1 2016	Interest Expenses	4,109
	Discount on Bonds Payable		609
	Cash		3,500




4. Second interest and amortization amount:

Interest payment	3,500
Interest Expenses	4,139
Amortization Amount	639