Entries for issuing bonds and amortizing discount by straight-line method
On the first day of its fiscal year, Chin Company issued $13,600,000 of 5-year, 10% 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 12%, resulting in Chin receiving cash of $12,598,965.
Question Content Area
a. Journalize the entries to record the following:
- Issuance of the bonds.
- First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)
- Second semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)
If an amount box does not require an entry, leave it blank.
| Entries | Account | Debit | Credit |
|---|---|---|---|
| 1. | Accounts PayableBonds PayableCashInterest ExpensePremium on Bonds Payable | – Select – | – Select – |
| Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpensePremium on Bonds Payable | – Select – | – Select – | |
| Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpensePremium on Bonds Payable | – Select – | – Select – | |
| 2. | Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest Payable | – Select – | – Select – |
| Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest Payable | – Select – | – Select – | |
| Bonds PayableCashInterest ExpenseInterest PayablePremium on Bonds Payable | – Select – | – Select – | |
| 3. | Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest Payable | – Select – | – Select – |
| Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest Payable | – Select – | – Select – | |
| Bonds PayableCashInterest ExpenseInterest PayablePremium on Bonds Payable | – Select – | – Select – |
Question Content Area
b. Determine the amount of the bond interest expense for the first year.
fill in the blank 1 of 1$
c. Why was the company able to issue the bonds for only $12,598,965 rather than for the face amount of $13,600,000?
The market rate of interest is fill in the blank 1 of 2
greater than less than
the contract rate of interest. Therefore, inventors fill in the blank 2 of 2
areare not
willing to pay the full face amount of the bonds.
It’s that simple.Pay only when you are satisfied.
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