on the first day of its fiscal year chin company issued 2600

Show ue How Print tem Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the first day of ts fiscal year, Cn Company ssued $26,000 000 of five-roar, 7% bonds to finance its operations of produong and seling home in on Interest is payable sermannually. The bonds were dsued at a market (effective) nterest rate of 9%, resitng in Cin recevng ash of $23,942,755. a. Journalze the entries to record the following 1. Issuance of the bonds. 2. First semiannual interest payment. The bond dacount is combined with the semiannual interest payment. (Round your answer to the nearest dollat) 3. Second semiannual interest payment. The bond discount is combired with the semiannual interest payment. (Round your anower to the nearest dollar.) If an amount box does not require an entry, leave it blank Round your answers to the nearest dollar . Cash Discount on Bonds reyable Premium on z Interest Expense Discount on Bonds Payable Interest Expense Discount on Bonds Payable 4 more Check My WWork uses remaining 8 9

Solution

A.

b. Determine the amount of bond interest expense for the first year.

Amount of Bond interest expense for the first year = $1,115,724.5 + $1,115,724.5 = $2,231,449

c. The company received PV(present value) of bond amount and interest provided thereon at the rate of 9%.

Proceeds = [PVAF(4.5%,10)*$910,000] + [PVIF(4.5%,10)*$26,000,000]

= (7.9127*$910,000)+(0.6439*$26,000,000)

= $23,942,755

The above calculation clearly shows how the company was able to issue at $23,942,755 instead of $26,000,000

No.	Particulars	Debit	Credit
a. 1	Cash	$23,942,755
	Discount on Bonds	2057245
	To 7% Bonds Payable		$26,000,000
	(To record issuance of bond)
a.2	Interest Expense	$1,115,725
	To Discount on Bonds		$205,724.5
	To Cash		$910,000
	(To record first semiannual interest payment)
a.3	Interest Expense	$1,115,725
	To Discount on Bonds		$205,724.5
	To Cash		$910,000
	(To record first semiannual interest payment)