Amortize premium by interest method Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Shunda issued $20,000,000 of 5-year, 10% bonds at a market (effective) interest rate of 8%, receiving cash of $21,622,179. Interest is payable semiannually. Shunda’s fiscal year begins on January 1. The company uses the interest method. a. Journalize the entries to record the following:
Amortize premium by interest method
Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Shunda issued $20,000,000 of 5-year, 10% bonds at a market (effective) interest rate of 8%, receiving cash of $21,622,179. Interest is payable semiannually. Shunda’s fiscal year begins on January 1. The company uses the interest method.
a.
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1. Sale of the bonds. 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 premium. 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 premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.
b. Determine the bond interest expense for the first year. Round to the nearest dollar.
Annual Interest Paid
Less premium amortized
Interest expense for first year
c. Explain why the company was able to issue the bonds for $21,622,179 rather than for the face amount of $20,000,000.
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