Entries for issuing bonds and amortizing discount by straight$-$line method

On the first day of its fiscal year, Chin Company issued $$23,100,000$ of $5-$year, $7\%$ bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market $($effective$)$ interest rate of $8\%,$ resulting in Chin receiving cash of $$22,163,099.$

Question Content Area

a$.$ Journalize the entries to record the following:

Issuance of the bonds.

First semiannual interest payment. The bond discount is combined with the semiannual interest payment.

Second semiannual interest payment. The bond discount is combined with the semiannual interest payment.

If an amount box does not require an entry, leave it blank.

EntriesAccountDebitCredit

$1.$

Cash

Discount on Bonds Payable

Bonds Payable

$2.$

Interest Expense

Discount on Bonds Payable

Cash

$3.$

Interest Expense

Discount on Bonds Payable

Cash

Feedback Area

Feedback

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.

Question Content Area

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

fill in the blank $1$ of $1$$

c$.$ Why was the company able to issue the bonds for only $$22,163,099$ rather than for the face amount of $$23,100,000?$

The market rate of interest is fill in the blank $1$ of $2$

greater than

the contract rate of interest. Therefore, inventors fill in the blank $2$ of $2$

are not

willing to pay the full face amount of the bonds.