Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the

Question

Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the first day of its fiscal interest rate of 8%, resulting in Chin Company receiving cash of $9,504,415. year, Chin Company issued $10,000,000 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 marknt (e 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 3. Second semiannual interest payment. The bond discount amortization, using the straight line For a compound transaction, if an amount box does not require an entry, leave combined with the semiannual interest payment. (Round your answer to the nearest dollar.) method, is combined with the semiannual interest payment. (Round your answer to the nearest dollar ) it blank. Round your answers to the nearest dollar Cash Discount on Bonds b405,585 9,594,415 o10,000,000 V 2. 431,117 X 8,117 X Cash 350,000 V Interest Expense 431.117 X Discount on Bonds Payable Cash 8,117 350.000 | Chick My Work Bonds Payable is always recorded at face value. Any differance in issue price i premium or discount account. The straight-ine methed of amortization provides equal amounts of amortization over the life b. Determine the amount of the bond interest expense for the first year 862,234 x c. Why was the company able to issue the bonds for only s9,594,415 rather than for the face amount of sio.000,000.

Explanation / Answer

semi annual interest expense to be recorded each semi annual period = (interest payment) +(straight line discount amortization)

here,

interest payment = $10,000,000 *7% *1/2 =>$350,000..

number of periods = 5 years * 2 semi annual periods =>10 semi annual periods

straight line discount amortization =$405,585 / 10 periods =>$40,558.50...

semi annual interest expense = $350,000 + 40,558.50 =>$390,559....(rounded to nearest dollar).

now,

the required journal entries.

b. Amount of bond interest expense for the first year = $781,118.....(390,559 *2).

C. The company was able to issue bonds at discount because, the market interest rate (8%) is greater than stated interest rate (7%)..

2 Interest expense a/c $390,559 .........To Discount on Bonds payable a/c $40,559 .........To Cash a/c $350,000 (recording first semi annual payment) 3 Interest expense a/c $390,559 .........To Discount on Bonds payable a/c $40,559 ........To Cash a/c $350,000 (recording second semi annual payment)

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