eBook Show Me How PrintItem Entries for issuing bonds and amortizing discount by straight-line method On the first day of its fiscal year, Chin Company issued $22,200,000 of 5-year, 6% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 7%, resulting in Chin receiving cash of $21,276,886. a. Journalize the entries to record the following: 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) 3. Second semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) If an amount box does not require an entry, leave it blank. 1. Cash Discount on Bonds Payable Bonds Payable 21,276,886 923,114 V 22,200,000 2. Interest Expense 666,000 X Discount on Bonds Payable Cash 92,311 758,311 X 3. Interest Expense 666,000 X Discount on Bonds Payable 92.311 Cash 758,311 X Feedback Check My Work Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of amortization provides equal amounts of amortization over the life of the bond. b. Determine the amount of the bond interest expense for the first year. 1,147,377 X c. Why was the company able to issue the bonds for only $21,276,886 rather than for the face amount of $22,200,0007 The market rate of interest is greater than amount of the bonds. the contract rate of interest. Therefore, inventors are not Feedback Check My Work willing to pay the full face b. Remember that the amortization of a bond discount or premium affects the amount of interest expenses recorded. c. Bonds will be issued for either a higher or lower amount than the face value when the market and contract rates of interest are different.