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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
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: b. Determine the bond interest expense for the first year. Round to the nearest dollar. c. Explain why the company was able to issue the bonds for $32,433,150 rather than for the face amount of $30,020,000. The bonds sell for more than their face amount because the market rate of interest is the contract rate of interest. Investors willing to pay more for bonds that pay a higher rate of interest (contract rate) than the rate they could earn on similar bonds (market rate). Second semiannual interest payi 0 rather than for the face amount of $30,000,000. the contract rate of i of interest is the rate they could earr c. Explain why the company was able The bonds sell for more than their fac are are not
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