Amortite Premium by Interest Method Shunds Corporation wholesoles parts to applance manufacturers. On January 1 , Shunds issued $30,000,000 of five-yeag, 1056 bonds at a market (effective) interest rate of 8\%, recelving cash of $32,433,150. Internst is poyable semiannually, Shunda's fiscal year begins on January 1 . The company uses the interest method. a. Journalize the entries to recard the following: 1. Sole of the bonds. Round to the nearest doltac, If an amount box does not require an entry, leave it blank. Fencar Thiturwin Honds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. 2. First semiannual interest poyment, inctuding omortzation of premium. Round to the nearest dollar, If an amount box does not require an entry, leave it biank. Feetliex Toweriven As the discount or premium is amortized, the carring ampunt of the bond changes. As a result, interest expense aso changes each period. Compare the rete on the bonds and the market rate. 3. Second semiannual interest payment, including amortization of premium. Raund to the nearest doliar. If an amount box does not require an entry, leave it blank. Findoact Tocherwhos As the discount or premium is amortined, the carrying amount of the bond changes. As a result, interest expense also changes each period: Compare the rate on the bonds and the market rate. b. Determine the bond interest expense for the first year. Round to the nearest dollar. reschase rovation To find the interest expense either add any discount amortured or subtrect any premium amortized to cash paid to the bondhoiders. c. Explain why the company was able to iswue the bonds for $32,433,150 rather than for the face amount of $30,000,000. The bonds sell for more than their face amount becouse the market rate of interest is : the contract rate of interest. Investors willing to pay more for bonds that pay a nigher rate of interest (contract rate) than the rate they could earn on similar bonds (market rate)