Question

еВook Calculator Show Me How Print Item Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the first day of its fiscal year, Chin Company issued $20,500,000 of five-year, 4 % bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 5%, resulting in Chin Company receiving cash of $19,602,945 a. Journalize the entries to record the following: 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment (Round your answer to the nearest dollar.) 3. Second semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payme (Round your answer to the nearest dollar.) For a compound transaction, if an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar. 2.

Answer 1

Solution 1:

Journal Entries - Chin Company
Event	Particulars	Debit	Credit
1	Cash Dr	$19,602,945.00
	Discount on bond payable Dr	$897,055.00
	To Bond payable		$20,500,000.00
	(To record issue of bond at discount)
2	Interest Expense Dr	$499,706.00
	To Discount on bond payable ($897,055/10)		$89,706.00
	To Cash ($20,500,000*2%)		$410,000.00
	(Being first semiannual interest payment made and discount amortized)
3	Interest Expense Dr	$499,706.00
	To Discount on bond payable ($897,055/10)		$89,706.00
	To Cash ($20,500,000*2%)		$410,000.00
	(Being 2nd semiannual interest payment made and discount amortized)

Solution 2:

Time interest earned = Earning before interest and taxes / Interest expense

Current year = ($313,900 + $73,000) / $73,000 = 5.3 times

Previous year = ($224,000 + $80,000) / $80,000 = 3.8 times