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

On the first day of its fiscal year, Chin Company issued $15,100,000 of five-year, 6% 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 $13,875,194.

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.

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

c. Why was the company able to issue the bonds for only $13,875,194 rather than for the face amount of $15,100,000?

The market rate of interest is

the contract rate of interest. Therefore, inventors

willing to pay the full face amount of the bonds.

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