Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the first day of its fiscal year, Chin Company issued $22,200,000 of five-year, 7% 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 8%, resulting in Chin receiving cash of $21,299,601. a. Journalize the entries to record the following: Issuance of the bonds. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) Second semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) If an amount box does not require an entry, leave it blank. 1. 2. 3. 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 $21,299,601 rather than for the face amount of $22,200,000? The market rate of interest is the contract rate of interest. Therefore, inventors willing to pay the full face amount of the bonds.

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 $22,200,000 of five-year, 7% 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 8%, resulting in Chin receiving cash of $21,299,601.

a. Journalize the entries to record the following:

Issuance of the bonds.
First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)
Second semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)

If an amount box does not require an entry, leave it blank.

1.


2.


3.

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 $21,299,601 rather than for the face amount of $22,200,000?
The market rate of interest is the contract rate of interest. Therefore, inventors willing to pay the full face amount of the bonds.

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