Question

On the first day of its fiscal year, Ebert Company issued $11,000,000 of 10-year, 7% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 9%, resulting in Ebert receiving cash of $9,569,097. The company uses the interest method. Required: a. Journalize the entries to record the following transactions. Refer to the Chart of Accounts for exact wording of account titles. 1. Sale of the bonds on January 1. 2. First semiannual interest payment on June 30, including amortization of discount. Round to the nearest dollar. 3. Second semiannual interest payment on December 31, including amortization of discount. Round to the nearest dollar. b. Compute the amount of the bond interest expense for the first year. c. Explain why the company was able to issue the bonds for only $9,569,097 rather than for the face amount of $11,000,000. b. Compute the amount of the bond interest expense for the first year. Enter amounts as a positive number. Annual interest paid $ Discount amortized Interest expense for first year $

Answer 1

Answer Pageno a) I sales of the bonds on Jan January ! Date Account Title & Explanation Debit Credit Jam i Year ( Cash , $9,569,097 Dişcount on bond Paya 66 $1,436,903 To bonds payable (Recoard işçue of bond discount 11,000,000 Valee End Jant.year Jun 30 yearl 2. First semiannual intralt payment on June 30, including amortization of discount. Semi-anned cash intrest Bond interest Dişcount ananatized carrying intores period paid Expense Amortization Discount $1,430,203 $9569097 $430609-6385 1430903-459569094+45609 $385000 $430, 609 =$.45609 = $1395749614,406 $432662-385 385294-47 9614706744662 Dec 31, yearl $385000 $482,662 = $47,662 = $1337632 =$9,669368 Date AccountsTitle R. Explanation. Debit Coredit. Jun 30 Intorelt Expense $430,609 To discount on bond payable To Cash $385.000 Fiorst semiannual interest Payment made and discount amortized 662 Yearl $45,609

Pagena@ on Dec 31 3) second semiamual intorest Payment Tucluding amostization of discount :- Credit Date Accountitle of Explanation Debit Dec 31, Yeon Interest Expense $432,662 To Discount on bond payable To Cash Second Semiannual infrust Payment made and discount amortized $47,662 $385000 6) The amount of the bond intesult Expens for the year Annual interest paid $ 777,000 Add: discount Amortized $ 93,271 Intorult Expense for first Yeaal + 863,27 ! ② The Company was able to issue the bonds for only $9, 569,097 rather than fooi the faceamowe of $ 11,000,000 because the market rate of intsult is higher than stated rate of intsult.