Amortize Premium by Interest Method Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Year 1, Shunda Corporation issued $22,000,000 of five-year, 9% bonds at a market (effective) interest rate of receiving cash of $23,829,684. Interest is payable semiannually. Shunda Corporation's fiscal year begins on January 1. 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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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### Financial Analysis: Bond Amortization and Interest Payments

#### 2. First Semiannual Interest Payment

Calculate the first semiannual interest payment, including the amortization of the premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

- **Dropdown menus and empty fields for calculations are provided.**

#### 3. Second Semiannual Interest Payment

Calculate the second semiannual interest payment, including the amortization of the premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

- **Dropdown menus and empty fields for calculations are provided.**

#### b. Bond Interest Expense for the First Year

Determine the bond interest expense for the first year. Enter amounts as positive numbers and round to the nearest dollar.

- **Annual Interest Paid:** $ _______
- **Premium Amortized:** $ _______
- **Interest Expense for First Year:** $ _______

#### c. Explanation: Issuance of Bonds at a Premium

Explain why the company was able to issue the bonds for $23,829,684 rather than their face amount of $22,000,000.

- The bonds sell for more than their face amount because the market rate of interest is _____ than the contract rate of interest. Investors are _____ willing to pay more for bonds that pay a higher rate of interest (contract rate) than the rate they could earn on similar bonds (market rate).

These sections require entries based on financial details and strategic reasoning surrounding bond issuance and interest calculations.
Transcribed Image Text:### Financial Analysis: Bond Amortization and Interest Payments #### 2. First Semiannual Interest Payment Calculate the first semiannual interest payment, including the amortization of the premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. - **Dropdown menus and empty fields for calculations are provided.** #### 3. Second Semiannual Interest Payment Calculate the second semiannual interest payment, including the amortization of the premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. - **Dropdown menus and empty fields for calculations are provided.** #### b. Bond Interest Expense for the First Year Determine the bond interest expense for the first year. Enter amounts as positive numbers and round to the nearest dollar. - **Annual Interest Paid:** $ _______ - **Premium Amortized:** $ _______ - **Interest Expense for First Year:** $ _______ #### c. Explanation: Issuance of Bonds at a Premium Explain why the company was able to issue the bonds for $23,829,684 rather than their face amount of $22,000,000. - The bonds sell for more than their face amount because the market rate of interest is _____ than the contract rate of interest. Investors are _____ willing to pay more for bonds that pay a higher rate of interest (contract rate) than the rate they could earn on similar bonds (market rate). These sections require entries based on financial details and strategic reasoning surrounding bond issuance and interest calculations.
**Amortize Premium by Interest Method**

Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Year 1, Shunda Corporation issued $22,000,000 of five-year, 9% bonds at a market (effective) interest rate of 7%, receiving cash of $23,829,684. Interest is payable semiannually. Shunda Corporation’s fiscal year begins on January 1. 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.*

   - [Line for Date Entry] [Account Title] [Debit] [Credit]
   - [Line for Date Entry] [Account Title] [Debit] [Credit]

2. **First semiannual interest payment, including amortization of premium.**  
   *Round to the nearest dollar. If an amount box does not require an entry, leave it blank.*

   - [Line for Date Entry] [Account Title] [Debit] [Credit]
   - [Line for Date Entry] [Account Title] [Debit] [Credit]

3. **Second semiannual interest payment, including amortization of premium.**  
   *Round to the nearest dollar. If an amount box does not require an entry, leave it blank.*

   - [Line for Date Entry] [Account Title] [Debit] [Credit]
   - [Line for Date Entry] [Account Title] [Debit] [Credit]
Transcribed Image Text:**Amortize Premium by Interest Method** Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Year 1, Shunda Corporation issued $22,000,000 of five-year, 9% bonds at a market (effective) interest rate of 7%, receiving cash of $23,829,684. Interest is payable semiannually. Shunda Corporation’s fiscal year begins on January 1. 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.* - [Line for Date Entry] [Account Title] [Debit] [Credit] - [Line for Date Entry] [Account Title] [Debit] [Credit] 2. **First semiannual interest payment, including amortization of premium.** *Round to the nearest dollar. If an amount box does not require an entry, leave it blank.* - [Line for Date Entry] [Account Title] [Debit] [Credit] - [Line for Date Entry] [Account Title] [Debit] [Credit] 3. **Second semiannual interest payment, including amortization of premium.** *Round to the nearest dollar. If an amount box does not require an entry, leave it blank.* - [Line for Date Entry] [Account Title] [Debit] [Credit] - [Line for Date Entry] [Account Title] [Debit] [Credit]
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