### Problem 2#### Scenario:On January 1, 2018, Sunrise Corporation issued $4,000,000 face value, 8% coupon, 5-year bonds dated January 1, 2018, for $3,800,000 (market interest rate of 9.3%). The bonds pay annual interest on January 1.#### Instructions:Prepare all the journal entries that Sunrise Corporation would make related to this bond issue through January 1, 2019, using the effective interest rate method. Be sure to indicate the date on which the entries would be made.---#### For Educators:This problem involves understanding the issuance of bonds at a discount, calculating interest expense using the effective interest rate method, and preparing the relevant journal entries. The key concepts highlighted in this problem include:1. **Issuance of Bonds**: - Journal entry at bond issuance reflecting the cash received and the bond discount.2. **Interest Payments and Expense**: - Calculation of interest expense using the effective interest rate. - Recognition of cash interest payments and amortization of the bond discount.3. **Effective Interest Rate Method**: - Understanding how to compute the interest expense based on the carrying amount of the bond and the market interest rate.The steps can be broken down for students as follows:1. **Initial Journal Entry on Issuance Date (January 1, 2018)**: - Debit: Cash for the amount received ($3,800,000) - Debit: Discount on Bonds Payable for the difference between face value and cash received ($200,000) - Credit: Bonds Payable for the face value of the bonds ($4,000,000)2. **Annual Interest Payment and Amortization (January 1, 2019)**: - Calculate interest expense using the effective interest rate (9.3%). \[ \text{Interest Expense} = \text{Carrying Amount of the Bonds at Beginning of Period} \times \text{Effective Interest Rate} \] For the first year: \[ \text{Interest Expense} = \$3,800,000 \times 9.3\% = \$353,400 \] - Calculate the cash interest payment using the coupon rate (8% of the face value). \[ \text{Cash Interest Payment} = \$4,000,

Bond Issue: The issuance of bonds is one method that businesses may use to obtain capital. A bond…

On January 1, 2018, Sunrise Corporation issued $4,000,000 face value, 8% coupon, 5-year bonds dated January 1, 2018, for $3,800,000 (market interest rate of 9.3%). The bonds pay annual interest on January 1. Instructions Prepare all the journal entries that Sunrise Corporation would make related to this bond issue through January 1, 2019, using effective interest rate method. Be sure to indicate the date on which the entries would be made.

On January 1, 2018, Sunrise Corporation issued $4,000,000 face value, 8% coupon, 5-year bonds dated January 1, 2018, for $3,800,000 (market interest rate of 9.3%). The bonds pay annual interest on January 1. Instructions Prepare all the journal entries that Sunrise Corporation would make related to this bond issue through January 1, 2019, using effective interest rate method. Be sure to indicate the date on which the entries would be made.

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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