Question

Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the first day of its fiscal year, Chin Company issued $27,200,000 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 $26,009,761. 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. 1. Cash 26,009,761 Discount on Bonds Payable 1,190,239 Bonds Payable 27,200,000 2. Interest Expense Discount on Bonds Payable III Cash

Answer 1

Record journal entry for first semi-annual interest payment
General Journal	Debit	Credit
Interest expense (26009761*2.5%)	$650,244
Discount on bonds payable (650244-544000)		$106,244
Cash (27200000*2%)		$544,000
(To record first semi-annual interest payment)
Record journal entry for second semi-annual interest payment
General Journal	Debit	Credit
Interest expense (26009761+106244)*2.5%)	$652,900
Discount on bonds payable (652900-544000)		$108,900
Cash (27200000*2%)		$544,000
(To record second semi-annual interest payment)
Total interest expense for year	650244+652900
Total interest expense for year	$1,303,144