Question

Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the first day of its fiscal year, Chin Company issued $16,800,000 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 receiving cash of $16,064,852. a. Journalize the entries to record the following: 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) 3. Second semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) If an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar. 1. Cash 16,064.852 7 Discount on Bonds Payable 735,148 Bonds Payable 16,800,000 2. Interest Expense 399.148 х Discount on Bonds Payable 183,787 X Cash 336.000 3. Interest Expense

Answer 1

a.

1 Cash Discount on bonds payable Bonds payable 16,064,852 735,148 16,800,000 409,515 2 Interest expense Discount on bonds payable (735,148 /10 period) Cash (16,800,000 x 2%) 73,515 336,000 409,515 3 Interest expense Discount on bonds payable (735,148 /10 period) Cash (16,800,000 x 2%) 73,515 336,000

b.

Bond interest expense for the first year = $409,515+$409,515 = $819,030

c. Greater than

are not