Amortize premium by interest methodShunda 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:1. Sale of the bonds. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.€882. 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 paidLess premium amortizedInterest expense for first yearc. Explain why the company was able to issue the bonds for $21,622,179 rather than for the face amount of $20,000,000.The bonds sell for more than their face amount because the market rate of interest isthe contract rate of interest. Investorswilling to pay more for bonds that pay a higher rate of interest (contract rate) than the rate they could earn on similar bonds (market rate).

The effective interest method is a technique used for amortizing bonds to show the actual interest…

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 inter a. Journalize the entries to record the following: 1. Sale of the bonds. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. 188 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. 188 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 른 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.

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 inter a. Journalize the entries to record the following: 1. Sale of the bonds. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. 188 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. 188 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 른 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.

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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