Question

EX 14-6 Entries for issuing bonds and amortizing discount by straight-line method OBJ. 2,3 On the first day of its fiscal year, Chin Company issued $10,000,000 of five-year, 7% 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 8%, resulting in Chin Company receiving cash of $9,594,415.

Answer 1

Chin Company
Issue Price of Bonds	$ 1,00,00,000.00
Number of Years	5
Rate	7%
Market Interest	8%
Company receiving Cash	$     95,94,415.00
Journal Entries
General,Journal	Debit	Credit
Cash	$     95,94,415.00
Discount on Bonds Payable	$       4,05,585.00
To Bonds Payable		$ 1,00,00,000.00
(Being amount of cash received on issue of Bonds)
Interest Expense($10000000*7%)/2	$       3,50,000.00
To Cash		$       3,50,000.00
(Being amount of Interest Expense for the first half year)
Interest Expense($10000000*7%)/2	$       3,50,000.00
To Cash		$       3,50,000.00
(Being amount of Interest Expense for the Last half year)
Interest Expense=(Discount on Bonds Payable)/Number of Years=($405585/5 Years)	$           81,117.00
To Discount on Bonds Payable		$           81,117.00
(Being amount of Discount Amortized )
Annual Interest	$       7,00,000.00
Plus: Discount Amortized	$           81,117.00
Interest Expense for the first year	$       7,81,117.00