Amortize Discount by Interest Method On the first day of its fiscal year, Ebert Company issued $50,000,000 of 10-year, 7% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 9%, resulting in Ebert receiving cash of $43,495,895. The company uses the interest method. a. Journalize the entries to record the following: 1. Sale of the bonds. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Cash 43.495,895 6,504,105 Discount on Bonds Payable Bonds Payable 50,000,000 2. First semiannual interest payment, including amortization of discount, Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Interest Expense 1.957,315 Discount on Bond Payable 207.315 Cash 1,750,000 3. Second semiannual interest payment, including amortization of discount, Round to the nearest dollar. If an amount box does not require an entry, leave it blank. 1,966,644 Interest Expense Discount on Bonds Payable Cash 216,644 1,750,000 Feedback b. Compute the amount of the bond interest expense for the first year. Round to the nearest dollar Annual interest paid 3,923,959 X 0 X Discount amortized Interest expense for first year 3,923,959 Feedback c. Explain why the company was able to issue the bonds for only $43,495,895 rather than for the face amount of $50,000,000. The bonds sell for less than their face amount because the market rate of interest is greater than the contract rate of interest. Investors are not willing to pay the full face amount for bonds that pay a lower contract rate of interest than the rate they could earn on similar bonds (market rate)