Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the first day of its fiscal year, Chin Company issued $29,200,000 of five-year, 9% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 11%, resulting in Chin Company receiving cash of $26,999,002. a. Journalize the entries to record the following: 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) 3. Second semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) For a compound transaction, if an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar. ✓ Discount on Bonds Payable Bonds Payable 1. Cash 2. Interest Expense Discount on Bonds Payable Cash ✓ 3. Interest Expense Discount on Bonds Payable Cash ✓ ✓ ✓ ✓ 26,999,002 2,200,998 ✔ 000 000 29,200,000 ✓ 1,314,000 ✓ 1,314,000 ✓

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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Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method
On the first day of its fiscal year, Chin Company issued $29,200,000 of five-year, 9% bonds to finance its operations of producing and selling home improvement products.
Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 11%, resulting in Chin Company receiving cash of $26,999,002.
a. Journalize the entries to record the following:
1. Issuance of the bonds.
2. First semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment. (Round your
answer to the nearest dollar.)
3. Second semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment. (Round your
answer to the nearest dollar.)
For a compound transaction, if an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar.
1. Cash
Discount on Bonds Payable
Bonds Payable
2. Interest Expense
Discount on Bonds Payable
Cash
3. Interest Expense
Discount on Bonds Payable
Cash
✓
26,999,002
2,200,998 ✔
29,200,000
1,314,000
1,314,000

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Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of
amortization provides equal amounts of amortization over the life of the bond.
b. Determine the amount of the bond interest expense for the first year.
c. Why was the company able to issue the bonds for only $26,999,002 rather than for the face amount of $29,200,000?
The market rate of interest is greater than
the contract rate of interest.

Expert Solution

Step 1 Introduction

Bond :— It is one of the type of securities that pays fixed periodic interest and face value amount at the end of maturity term to their investors.

Journal Entry :— It is an act of recording transaction in books of account when transaction occurred.

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