Question

Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method

On the first day of its fiscal year, Chin Company issued $25,800,000 of five-year, 10% 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 11%, resulting in Chin Company receiving cash of $24,827,637.

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 payment. (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.

1.
2.
3.

b. Determine the amount of the bond interest expense for the first year.
$

c. Why was the company able to issue the bonds for only $24,827,637 rather than for the face amount of $25,800,000?
The market rate of interest is   the contract rate of interest.

Answer 1

solutioni (a) journal entry a cash Discount on Ronds payable Bonds payable 24827637 972 363 25 800000 2) Interest Expenses 1455890.87 Discount on Bonds payable (972 362 120 ) 148618.15 cash (25800000 X 107 X 611 40727272 B) 1455890.87 48618.15 Interest Expenses Discount on Bonde payable 9 036310) cash (2580000oX 107.7 6/11) Bond Interest Expenses. (1455890.81tl455890.81) 1401212-12 b) 2911181.74 o Higher than The bonds are issued at when market interest rate is more than the contract interest rate.