Entries for issuing bonds and amortizing discount by straight$-$line method

On the first day of its fiscal year, Chin Company issued $$23,100,000$ of $5-$year, $7\%$ bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market $($effective$)$ interest rate of $8\%,$ resulting in Chin receiving cash of $$22,163,099.$

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a$.$ Journalize the entries to record the following:

Issuance of the bonds.

First semiannual interest payment. The bond discount is combined with the semiannual interest payment. $($Round your answer to the nearest dollar.$)$

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.

EntriesAccountDebitCredit

$1.$

Cash

$22,163,099$

Discount on Bonds Payable

$936,901$

Bonds Payable

$23,100,000$

$2.$

Interest Expense

Discount on Bonds Payable

Cash

$3.$

Interest Expense

Discount on Bonds Payable

Cash

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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.

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b$.$ Determine the amount of the bond interest expense for the first year.

fill in the blank $1$ of $1$$

c$.$ Why was the company able to issue the bonds for only $$22,163,099$ rather than for the face amount of $$23,100,000?$

The market rate of interest is fill in the blank $1$ of $2$

greater than

the contract rate of interest. Therefore, inventors fill in the blank $2$ of $2$

are not

willing to pay the full face amount of the bonds.