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

On the first day of its fiscal year, Jacinto Company issued $22,300,000 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 9%, resulting in Jacinto Company receiving cash of $20,535,517.

Question Content Area

a. Journalize the entries to record the following:

Issuance of the bonds.

First semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment.

Second semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment.

If an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar.

1.

	Cash	Cash

	Discount on Bonds Payable	Discount on Bonds Payable

	Bonds Payable	Bonds Payable
2.

	Interest Expense	Interest Expense

	Discount on Bonds Payable	Discount on Bonds Payable

	Cash	Cash
3.

	Interest Expense	Interest Expense

	Discount on Bonds Payable	Discount on Bonds Payable

Cash

Cash

Question Content Area

b. Determine the amount of the bond interest expense for the first year. Round your answer to the nearest dollar. $fill in the blank 33f075038015013_1

c. Why was the company able to issue the bonds for only $20,535,517 rather than for the face amount of $22,300,000? The market rate of interest is

the contract rate of interest.