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

On the first day of its fiscal year, Chin Company issued $20,000,000 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 $19,188,830.

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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.

Entries	Account	Debit	Credit
1.	Accounts PayableBonds PayableCashInterest ExpensePremium on Bonds PayableCash	Cash	Cash
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpensePremium on Bonds PayableDiscount on Bonds Payable	Discount on Bonds Payable	Discount on Bonds Payable
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpensePremium on Bonds PayableBonds Payable	Bonds Payable	Bonds Payable
2.	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayableInterest Expense	Interest Expense	Interest Expense
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayableDiscount on Bonds Payable	Discount on Bonds Payable Incorrect	Discount on Bonds Payable
	Bonds PayableCashInterest ExpenseInterest PayablePremium on Bonds PayableCash	Cash	Cash
3.	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest Payable	- Select -	- Select -
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest Payable	- Select -	- Select -
	Bonds PayableCashInterest ExpenseInterest PayablePremium on Bonds Payable	- Select -	- Select -

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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.

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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 $19,188,830 rather than for the face amount of $20,000,000? The market rate of interest is fill in the blank 1 of 2

greater than less than

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

areare not

willing to pay the full face amount of the bonds.