Entries for Issuing Bonds and Amortizing Discount by Straigh

Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the first day of its fiscal year, Chin Company issued $24,100,000 of five-year, 9% 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 11%, resulting in Chin receiving cash of $22,283,423. 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. Round your answers to the nearest dollar. 1. 2. 3. b. Determine the amount of the bond interest expense for the first year.

Solution

Question no.1

a. Journal

Question no.2

a. Journal

b. Journal

c. lower than

Question no. 3

1. Journal

2. Journal

a.

b.

3. Total interest expense for year 1 = $128836 + $128836 = $257672

4. Yes

5.

Present value of the face amount = $2300000 x PV6%,18 = $2300000 x 0.35034 = $805782

Present value of semi-annual interest payments = $115000 x PVA6%,18 = $115000 x 10.82760 = $1245174

Price received for the bonds = $805782 + $1245174 = $2050956

No.	Account Name	Debit	Credit
1.	Cash	22283423
	Discount on bonds payable	1816577
	Bonds payable		24100000
	(To record issuance of bonds)
2.	Interest expense	1266158
	Discount on bonds payable (1816577/ 10)		181658
	Cash (24100000 x 9% x 1/2)		1084500
	(To record interest payment)
3.	Interest expense	1266158
	Discount on bonds payable (1816577/ 10)		181658
	Cash (24100000 x 9% x 1/2)		1084500
	(To record interest payment)