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

On the first day of its fiscal year, Chin Company issued $15,300,000 of five-year, 4% 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 5%, resulting in Chin receiving cash of $14,630,490.

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.

1.	Cash	fill in the blank dbbbe0072f9ffd5_2	fill in the blank dbbbe0072f9ffd5_3
	Discount on Bonds Payable	fill in the blank dbbbe0072f9ffd5_5	fill in the blank dbbbe0072f9ffd5_6
	Bonds Payable	fill in the blank dbbbe0072f9ffd5_8	fill in the blank dbbbe0072f9ffd5_9
2.	Interest Expense	fill in the blank dbbbe0072f9ffd5_11	fill in the blank dbbbe0072f9ffd5_12
	Discount on Bonds Payable	fill in the blank dbbbe0072f9ffd5_14	fill in the blank dbbbe0072f9ffd5_15
	Cash	fill in the blank dbbbe0072f9ffd5_17	fill in the blank dbbbe0072f9ffd5_18
3.	Interest Expense	fill in the blank dbbbe0072f9ffd5_20	fill in the blank dbbbe0072f9ffd5_21
	Discount on Bonds Payable	fill in the blank dbbbe0072f9ffd5_23	fill in the blank dbbbe0072f9ffd5_24
	Cash	fill in the blank dbbbe0072f9ffd5_26	fill in the blank dbbbe0072f9ffd5_27

b. Determine the amount of the bond interest expense for the first year. $fill in the blank 16c252043fa6020_1

c. Why was the company able to issue the bonds for only $14,630,490 rather than for the face amount of $15,300,000? The market rate of interest is greater than the contract rate of interest. Therefore, inventors are not willing to pay the full face amount of the bonds.