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. For a compound transaction, if an amount box does not require an entry, leave it blank. Cash Premium on Bonds Payable Bonds Payable Feedback As the discount or premium is amortized, the carrying amount of the bond changes. As a result, interest expense also changes each period. Compare the rate on the bonds and the market rate. 2. First semiannual interest payment, including amortization of premium. Round to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank. Interest Expense Premium on Bonds Payable Cash As the discount or premium is amortized, the carrying amount of the bond changes. As a result, interest expense also changes each period. Compare the rate on the bonds and the market rate. 3. Second semiannual interest payment, including amortization of premium. Round to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank. Interest Expense Premium on Bonds Payable Cash Feedback As the discount or premium is amortized, the carrying amount of the bond changes. As a result, interest expense also changes each period. Compare the rate on the bonds and the market rate. b. Determine the bond interest expense for the first year. Enter amounts as positive numbers. Round amounts to the nearest dollar. Annual interest paid $ Premium amortized Interest expense for first year $ Feedback As the discount or premium is amortized, the carrying amount of the bond changes. As a result, interest expense also changes each period. Compare the rate on the bonds and the market rate. c. Explain why the company was able to issue the bonds for $23,829,684 rather than for the face amount of $22,000,000. The bonds sell for more than their face amount because the market rate of interest is less 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). If you could throughly explain how you get the individual numbers that would be greatly appreciated. I am studying for a final.
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.
1. Sale of the bonds. Round amounts to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank.
| Cash | |||
| Premium on Bonds Payable | |||
| Bonds Payable |
As the discount or premium is amortized, the carrying amount of the bond changes. As a result, interest expense also changes each period.
Compare the rate on the bonds and the market rate.
2. First semiannual interest payment, including amortization of premium. Round to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank.
| Interest Expense | |||
| Premium on Bonds Payable | |||
| Cash |
As the discount or premium is amortized, the carrying amount of the bond changes. As a result, interest expense also changes each period.
Compare the rate on the bonds and the market rate.
3. Second semiannual interest payment, including amortization of premium. Round to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank.
| Interest Expense | |||
| Premium on Bonds Payable | |||
| Cash |
As the discount or premium is amortized, the carrying amount of the bond changes. As a result, interest expense also changes each period.
Compare the rate on the bonds and the market rate.
b. Determine the bond interest expense for the first year. Enter amounts as positive numbers. Round amounts to the nearest dollar.
| Annual interest paid | $ |
| Premium amortized | |
| Interest expense for first year | $ |
As the discount or premium is amortized, the carrying amount of the bond changes. As a result, interest expense also changes each period.
Compare the rate on the bonds and the market rate.
c. Explain why the company was able to issue the bonds for $23,829,684 rather than for the face amount of $22,000,000.
The bonds sell for more than their face amount because the market rate of interest is less 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).
If you could throughly explain how you get the individual numbers that would be greatly appreciated. I am studying for a final.
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