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On the first day of its fiscal year, Chin Company issued $20,400,000 of 5-year, 10% 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 12%, resulting in Chin receiving cash of $18,898,448. a. Journalize the entries to record the following: 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.). 3. 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. Cash 18,898,448 Discount on Bonds Payable ✓ 1,501,552 V 20,400,000 Bonds Payable 2. Interest Expense ✓ Discount on Bonds Payable Cash 3. Interest Expense ✓ Discount on Bonds Payable Cash Feedback ▼Check My Work 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 $18,898,448 rather than for the face amount of $20,400,000? The market rate of interest is the contract rate of interest. Therefore, inventors willing to pay the full face amount of the bonds.

On the first day of its fiscal year, Chin Company issued $20,400,000 of 5-year, 10% 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 12%, resulting in Chin receiving cash of $18,898,448. a. Journalize the entries to record the following: 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.). 3. 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. Cash 18,898,448 Discount on Bonds Payable ✓ 1,501,552 V 20,400,000 Bonds Payable 2. Interest Expense ✓ Discount on Bonds Payable Cash 3. Interest Expense ✓ Discount on Bonds Payable Cash Feedback ▼Check My Work 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 $18,898,448 rather than for the face amount of $20,400,000? 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
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 $20,400,000 of 5-year, 10% 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 12%, resulting in Chin receiving cash of $18,898,448. a. Journalize the entries to record the following: 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.). 3. 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. Cash 18,898,448 Discount on Bonds Payable 1,501,552 Bonds Payable 20,400,000 2. Interest Expense Discount on Bonds Payable Cash 3. Interest Expense Discount on Bonds Payable Cash Feedback Check My Work 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 $18,898,448 rather than for the face amount of $20,400,000? The market rate of interest is the contract rate of interest. Therefore, inventors willing to pay the full face amount of the bonds.
Transcribed Image Text:Entries for issuing bonds and amortizing discount by straight-line method On the first day of its fiscal year, Chin Company issued $20,400,000 of 5-year, 10% 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 12%, resulting in Chin receiving cash of $18,898,448. a. Journalize the entries to record the following: 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.). 3. 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. Cash 18,898,448 Discount on Bonds Payable 1,501,552 Bonds Payable 20,400,000 2. Interest Expense Discount on Bonds Payable Cash 3. Interest Expense Discount on Bonds Payable Cash Feedback Check My Work 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 $18,898,448 rather than for the face amount of $20,400,000? 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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