Amortize Discount by Interest MethodOn the first day of its fiscal year, Ebert Company issued $12,000,000 of 5-year, 11% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective)interest rate of 12%, resulting in Ebert Company receiving cash of $11,558,459. The company uses the interest method.a. Journalize the entries to record the following:1. Sale of the bonds. Round amounts to the nearest dollar. If an amount box does not require an entry, leave it blank.2. First semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.3. Second semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry. leave it blank. 2. First semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.3. Second semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.b. Compute the amount of the bond interest expense for the first year. Round amounts to the nearest dollar.Annual interest paidDiscount amortizedInterest expense for first year SC. Explain why the company was able to issue the bonds for only $11,558,459 rather than for the face amount of $12.000.000.The bonds sell for less than their face amount because the market rate of interest isthe contract rate of interest. Investorswilling to pay the full faceamount for bonds that pay a lower contract rate of interest than the rate they could earn on similar bonds (market rate69

The journal entries are prepared to record daily transactions of the business.

Answered: Amortize Discount by Interest Method On…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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