The Journal entries for the issuance of bonds, the first semi-annual interest, and the second semi-annual interest are given in the attachment.
What are bonds?
The bond refers to a fixed-income bearing investment usually in the form of a loan by the investor to the issuer. The bonds are usually issued by corporates to raise finance.
They may be issued at par, premium, or at discount. Issuance of bonds on the premium is made when the interest rate provided by the bond is higher than the market rate.
In the situation when the bond interest rate is lower than the market interest rate, the bonds are issued at discount.
The market rate in the given question was 8% and the interest or coupon rate of the bonds is 7%, hence the company issued bonds at a discount.
The discount on the issue can be calculated as:
[tex]\begin{aligned} \rm Discount &=\rm Face \:value - Issue\:Price\\\\&= \$10,000,000 - \$9,594,415\\\\&= \$405,585\end[/tex]
The discount is debited as it is an expense to the company.
The discount is then amortized with every interest payment and debited to the interest expense account. The amortization will be in 10 equal parts for 5 years since the interest is paid twice a year.
The amount of discount to be debited is:
[tex]\begin{aligned} \rm Discount\:to\:be\:amortized &= \dfrac{\rm Total \:Discount}{10}\\\\&= \dfrac{\rm 405585}{10}\\\\&= \$40559\end[/tex]
Therefore, the company issued the bonds at a discount since the market rate is higher than the coupon rate.
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