Amortize Discount by Interest Method On the first day of its fiscal year, Ebert Company issued $24,000,000 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 receiving cash of $23,116,919. The company uses the interest method. a. Journalize the entries to record the following: 1. Sale of the bonds. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. fill in the blank 75d57bff7072073_2 fill in the blank 75d57bff7072073_3 fill in the blank 75d57bff7072073_5 fill in the blank 75d57bff7072073_6 fill in the blank 75d57bff7072073_8 fill in the blank 75d57bff7072073_9 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. fill in the blank 977a63fce061fea_2 fill in the blank 977a63fce061fea_3 fill in the blank 977a63fce061fea_5 fill in the blank 977a63fce061fea_6 fill in the blank 977a63fce061fea_8 fill in the blank 977a63fce061fea_9 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. fill in the blank 96c721f8f01d057_2 fill in the blank 96c721f8f01d057_3 fill in the blank 96c721f8f01d057_5 fill in the blank 96c721f8f01d057_6 fill in the blank 96c721f8f01d057_8 fill in the blank 96c721f8f01d057_9 b. Compute the amount of the bond interest expense for the first year. Round to the nearest dollar. Annual interest paid $fill in the blank d45cfa021021fbd_1 Discount amortized fill in the blank d45cfa021021fbd_2 Interest expense for first year $fill in the blank d45cfa021021fbd_3 c. Explain why the company was able to issue the bonds for only $23,116,919 rather than for the face amount of $24,000,000. The bonds sell for less than their face amount because the market rate of interest is the contract rate of interest. Investors willing to pay the full face amount for bonds that pay a lower contract rate of interest than the rate they could earn on similar bonds (market rate).

Amortize Discount by Interest Method On the first day of its fiscal year, Ebert Company issued $24,000,000 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 receiving cash of $23,116,919. The company uses the interest method. a. Journalize the entries to record the following: 1. Sale of the bonds. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. fill in the blank 75d57bff7072073_2 fill in the blank 75d57bff7072073_3 fill in the blank 75d57bff7072073_5 fill in the blank 75d57bff7072073_6 fill in the blank 75d57bff7072073_8 fill in the blank 75d57bff7072073_9 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. fill in the blank 977a63fce061fea_2 fill in the blank 977a63fce061fea_3 fill in the blank 977a63fce061fea_5 fill in the blank 977a63fce061fea_6 fill in the blank 977a63fce061fea_8 fill in the blank 977a63fce061fea_9 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. fill in the blank 96c721f8f01d057_2 fill in the blank 96c721f8f01d057_3 fill in the blank 96c721f8f01d057_5 fill in the blank 96c721f8f01d057_6 fill in the blank 96c721f8f01d057_8 fill in the blank 96c721f8f01d057_9 b. Compute the amount of the bond interest expense for the first year. Round to the nearest dollar. Annual interest paid $fill in the blank d45cfa021021fbd_1 Discount amortized fill in the blank d45cfa021021fbd_2 Interest expense for first year $fill in the blank d45cfa021021fbd_3 c. Explain why the company was able to issue the bonds for only $23,116,919 rather than for the face amount of $24,000,000. The bonds sell for less than their face amount because the market rate of interest is the contract rate of interest. Investors willing to pay the full face amount for bonds that pay a lower contract rate of interest than the rate they could earn on similar bonds (market rate).

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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Amortize Discount by Interest Method

On the first day of its fiscal year, Ebert Company issued $24,000,000 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 receiving cash of $23,116,919. The company uses the interest method.

a. Journalize the entries to record the following:

1. Sale of the bonds. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

		fill in the blank 75d57bff7072073_2	fill in the blank 75d57bff7072073_3
		fill in the blank 75d57bff7072073_5	fill in the blank 75d57bff7072073_6
		fill in the blank 75d57bff7072073_8	fill in the blank 75d57bff7072073_9

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.

		fill in the blank 977a63fce061fea_2	fill in the blank 977a63fce061fea_3
		fill in the blank 977a63fce061fea_5	fill in the blank 977a63fce061fea_6
		fill in the blank 977a63fce061fea_8	fill in the blank 977a63fce061fea_9

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.

		fill in the blank 96c721f8f01d057_2	fill in the blank 96c721f8f01d057_3
		fill in the blank 96c721f8f01d057_5	fill in the blank 96c721f8f01d057_6
		fill in the blank 96c721f8f01d057_8	fill in the blank 96c721f8f01d057_9

b. Compute the amount of the bond interest expense for the first year. Round to the nearest dollar.

Annual interest paid	$fill in the blank d45cfa021021fbd_1
Discount amortized	fill in the blank d45cfa021021fbd_2
Interest expense for first year	$fill in the blank d45cfa021021fbd_3

c. Explain why the company was able to issue the bonds for only $23,116,919 rather than for the face amount of $24,000,000.

The bonds sell for less than their face amount because the market rate of interest is the contract rate of interest. Investors willing to pay the full face amount for bonds that pay a lower contract rate of interest than the rate they could earn on similar bonds (market rate).

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