Amortize The interest deducted from the maturity value of a note or the excess of the face amount of bonds over their issue price.Discount by Interest Method

On the first day of its fiscal year, Ebert Company issued $16,000,000 of 5-year, 10% A form of an interest-bearing note used by corporations to borrow on a long-term basis.bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 11%, resulting in Ebert receiving cash of $15,396,984. The company uses the interest method.

a. Journalize the entries to record the following:

1. Sale of the bonds. Round amounts to the nearest dollar. If an amount box does not require an entry, leave it blank.

	Cash Accounts Payable Bonds Payable Cash Interest Expense Interest Payable Premium on Bonds Payable
	Discount on Bonds Payable Accounts Payable Bonds Payable Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable
	Bonds Payable Accounts Payable Bonds Payable Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable

Feedback

As the discount or premium is amortized, the carrying amount of the bond changes. As a result, interest expense also changes each period.

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 Accounts Payable Bonds Payable Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable
	Discount on Bonds Payable Accounts Payable Bonds Payable Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable
	Cash Accounts Payable Bonds Payable Cash Interest Expense Interest Payable Premium on Bonds Payable

Feedback

2. Cash received for issuance x semiannual market rate x time = interest expense (debit). Principal x semiannual contract rate x time = cash paid (credit). The discount amortized (credit) is the difference between the two amounts.

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.

	Interest Expense Accounts Payable Bonds Payable Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable
	Discount on Bonds Payable Accounts Payable Bonds Payable Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable
	Cash Accounts Payable Bonds Payable Cash Interest Expense Interest Payable Premium on Bonds Payable

Feedback

3. Cash received (+ discount amortized) x semiannual market rate x time = interest expense (debit). Principal x semiannual contract rate x time = cash paid (credit). The discount amortized (credit) is the difference between the two amounts.

b. Compute the amount of the bond interest expense for the first year. Round amounts to the nearest dollar.

Annual interest paid	$
Discount amortized
Interest expense for first year	$