Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the first day of its fiscal
Question:
Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method
On the first day of its fiscal year, Chin Company issued $26,000,000 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 7%, resulting in Chin Company receiving cash of $24,918,876.
a. Journalize the entries to record the following:
- Issuance of the bonds.
- 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.)
- 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.
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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 $24,918,876 rather than for the face amount of $26,000,000?
The market rate of interest is____ the contract rate of interest.
Accounting
ISBN: 978-1337899451
27th edition
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac