Amortize Premium by Interest Method Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Shunda issued $30,000,000 of five-year, 10% bonds at a market (effective) interest rate of 8%, receiving cash of $32,433,150 Interest is payable semiannually. Shunda's fiscal year begins on January 1. 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 Premium on Bonds Payable. Bonds Payable 32.433156 2. First semiannual interest payment, including amortization of premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Interest Expense Premium en Bands Payable Cash 1,297,334 3. Second semiannual interest payment, including amortization of premium. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Interest Expense Premium on Bends Payable Cash b. Determine the bond interest expense for the first year. Round to the nearest dollar Annual interest paid Less premium amortized Interest expense for first year c. Explain why the company was able to issue 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 because the market rate of interest is rate of interest (contract rate) than the rate they could earn on similar bonds (market rate) the contract rate of interest. Investors are willing to pay more for bonds that pay a higher Previous Next