Question

Amortize discount by interest method Instructions Chart of Accounts Journal Additional Question Final Question Instructions On January 1, the first day of its fiscal year, Ebert Company issued $12,500,000 of 10-year, 9% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 11%, resulting in Ebert Company receiving cash of $11,006,214. The company uses the interest method Journal A. Journalize the entries to record the transactions. Refer to the Chart of Accou JOURNAL Required DATE DESCRIPTION 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. 2. First semiannual interest payment, including amortization of discount. Round to the nearest dollar. 3. Second semiannual interest payment, 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 $11,006,214 rather than for the face amount of $12,500,000

Answer 1

Period ended	Interest Paid	Interest Expense	Discount amortized	Unamortized Discount	Carrying Value
Jan 1				1,493,786	11,600,214
1st Semi-annual	562,500	605,342	42,842	1,450,944	11,049,056
2nd Semi-annual	562,500	607,698	45,198	1,405,746	11,094,254

Answer to Part B.

Annual Interest Paid	1,125,000
Discount Amortized	88,040
Interest Expense for first year	1,213,040

Answer to Part C.

The Company is able to issue the bonds only for $11,006,214 because the stated rate of interest is less than market rate of interest.