Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method
On the first day of its fiscal year, Chin Company issued $10,600,000 of five-year, 5% 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 6%, resulting in Chin receiving cash of $10,147,857.
a. Journalize the entries to record the following:
If an amount box does not require an entry, leave it blank.
1. | Cash | ||
Discount on Bonds Payable | |||
Bonds Payable | |||
2. | Interest Expense | ||
Discount on Bonds Payable | |||
Cash | |||
3. | Interest Expense | ||
Discount on Bonds Payable | |||
Cash |
b. Determine the amount of the bond interest
expense for the first year.
$
a | ||||
1 | Cash | 10147857 | ||
Discount on Bonds Payable | 452143 | |||
Bonds Payable | 10600000 | |||
2 | Interest Expense | 310214 | ||
Discount on Bonds Payable | 45214 | =452143/10 | ||
Cash | 265000 | =10600000*5%/2 | ||
3 | Interest Expense | 310214 | ||
Discount on Bonds Payable | 45214 | |||
Cash | 265000 | |||
b | Bond interest expense for first year | 620428 | =310214+310214 |
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