Question

Entries for issuing Bonds and Amorting Discount by Strught-Line Method On the first day of its fi yew Chin Company issued 116,200,000 of five-year, 8% bonds to finances tons of producing and selling home mprowa products. Interest is payable semi l y. The bonds were sta t (elective interest rate of 10%, resting in Chin Company receiving cash of $16.509,023 3. Journalge the res to record the following: 1. Issuance of the bonds 2. First semiannual interest payment. The band 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 right-line method, combined with the sem i naret payment Round your answer to the nearest dolls) For a compound transaction an amount or does not require an entry leave blank Round your answers to the nearest dollar 100 000 000

Answer 1

a)

Par value of bonds = $16,200,000

Cash proceeds from issuance of bonds = $14,949,023

Discount on bonds payable = Par value of bonds - Cash proceeds from issuance of bonds

= $16,200,000 - $14,949,023

= $1,250,977

Semi annual interest payment = 16,200,000 x 8% x 6/12

= $648,000

Semi annual amortization of bond discount = $1,250,977/10

= $125,098

Journal

1	Cash	14,949,023
	Discount on bonds payable	1,250,977
	Bonds payable		16,200,000
2	Interest expense	773,098
	Discount on bonds payable		125,098
	Cash		648,000
3	Interest expense	773,098
	Discount on bonds payable		125,098
	Cash		648,000

b)

Bond interest expense for year 1 = 773,098 + 773,098

= $1,546,196

c)

The market rate of interest is more than the contract rate of interest.

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