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    Master-Level Finance Question on Capital Budgeting


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    On January 1, 2024, a company issued $1,000,000 in 5-year bonds with a stated annual interest rate of 6%, payable annually. The market interest rate at the time of issuance was 8%. Calculate the issue price of the bonds and prepare the journal entry for the first interest payment using the effective interest method.

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    Step 1: Calculate the Issue Price
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    Journal Entry:
    Dr. Interest Expense – $73,611.41
    Cr. Cash – $60,000
    Cr. Discount on Bonds Payable – $13,611.41

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