Question

Entries for issuing Bonds and Amortizing Discount by straight-Ure H UU On the first day of its fiscal year, Chin Company issued $10,000,000 of five year, 7% 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 8%, resulting in Chin Company receiving cash of $9,594,415. 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 Cash 004415 Discount on Bonds Payable 40558 10,000,000 Bonds Payable Interest Expense Discount on Blonds Payable Cash Interest Expense 390.559 Dount on lands Pavable

Answer 1

WORKING NOTES:
	CALCULATION OF INTEREST EXPENSES FOR FIRST AND SECOND SEMI ANNUAL PAYMENT
	Par Value of the bond=	$         1,00,00,000
	Less: Issue price of par value	$            95,94,415
	Discount on issuance of Bonds	$               4,05,585
	Discount is amortized in 10 Period of semi annual
	So Discount in each semi annual = ($ 405,585/10)	$                  40,559
SOLUTION : A
Journal Entries
Date	Account Title and explanation	Debit	Credit
1	Cash Account	$            95,94,415
	Discount on Bonds Payable	$               4,05,585
	Bonds Payable		$           1,00,00,000
2	Interest Expenses	$               3,90,559
	Discount on issuance of bonds		$                     40,559
	Cash		$                 3,50,000
3	Interest Expenses	$               3,90,559
	Discount on issuance of bonds		$                     40,559
	Cash		$                 3,50,000
SOLUTION : B
	Interest Expenses for the first year = 390,559 + 390,559 =	$               7,81,118
SOLUTION : C	Greater Than