Entnes tor ?ssuing Bonds and Amortizing Discount by Straight-Line Method On the

Question

Entnes tor ?ssuing Bonds and Amortizing Discount by Straight-Line Method On the first day of its fiscal year, Chin Company issued $11,000,000 offive-year, 5% 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 6%, resulting in Chin Company receiving cash of $10,530,795. 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. Cash Discount on Bonds Payable 196,205X Bonds Payable 11,000,000 X 2. Interest Expense 324,621X Discount on Bonds Payable Cash 49,621 X 275,000 V 3. Interest Expense 324,621 X Discount on Bonds Payable 49,621 X Cash 275,000 v Feedback ?Check My Wbrk 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. 9.242

Explanation / Answer

Journal entries: Issuance of bonds Cash account Dr. 10,530,795 Discount on bonds payable Dr. 469,205     Bonds payable 11,000,000 First semi Interest Interest expense Account Dr. 321920      Cash a ccount (11000,000*5%*6/12) 275000      Discount on Bonds payable (469205/10) 46920 Second Semi Interest Interest expense Account Dr. 321920      Cash a ccount (11000,000*5%*6/12) 275000      Discount on Bonds payable (469205/10) 46920 Interest expense for the first year $643,840 (321920+321920)

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