Entries for Issuing Bonds and Amortizing Discount by Straight$-$Line Method

On the first day of its fiscal year, Chin Company issued $$10,000,000$ of five$-$year, $7\%$ bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market $($effective$)$ interest rate of $8\%,$ resulting in Chin receiving cash of $$9,594,415.$

Question Content Area

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.

$1.$

Cash

$9,594,415$

Discount on Bonds Payable

$405,585$

Bonds Payable

$10,000,000$

$2.$

Interest Expense

$390,559$

Discount on Bonds Payable

$40,559$

Cash

$350,000$

$3.$

Interest Expense

$390,559$

Discount on Bonds Payable

$40,559$

Cash

$350,000$

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

$fill in the blank $62$d$55901200307$b$\_1$

c$.$ Why was the company able to issue the bonds for only $$9,594,415$ rather than for the face amount of $$10,000,000?$

The market rate of interest is

greater than

the contract rate of interest. Therefore, inventors

are not

willing to pay the full face amount of the bonds.