Question

On the first day of its fiscal year, Chin Company issued $30,000,000 of five-year, 9% 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 receiving cash of $27,738,701.

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

Answer 1

Solution A:
Journal Entries - Chin Company
Event	Particulars	Debit	Credit
1	Cash Dr	$27,738,701.00
	Discount on bond payable Dr	$2,261,299.00
	To Bond payable		$30,000,000.00
	(To record issue of bond at discount)
2	Interest Expense Dr	$1,576,130.00
	To Discount on bond payable ($2,261,299/10)		$226,130.00
	To Cash ($30,000,000*4.5%)		$1,350,000.00
	(Being first semiannual interest payment made and discount amortized)
3	Interest Expense Dr	$1,576,130.00
	To Discount on bond payable ($2,261,299/10)		$226,130.00
	To Cash ($30,000,000*4.5%)		$1,350,000.00
	(Being 2nd semiannual interest payment made and discount amortized)

Solution b:

Interest expense for first year = $1,576,130 + $1,576,130 = $3,152,260