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

On the first day of its fiscal year, Chin Company issued $15,600,000 of five-year, 5% 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 6%, resulting in Chin Company receiving cash of $14,934,582.

a. Journalize the entries to record the following:

1. Issuance of the bonds.
2. First semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)
3. Second semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)

For a compound transaction, 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.

$ ____________________

c. Why was the company able to issue the bonds for only $14,934,582 rather than for the face amount of $15,600,000?

The market rate of interest is___________________ the contract rate of interest.