Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the first day of its fiscal year, Chin Company issued $21,600,000 of five-year, 9% 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 10%, resulting in Chin receiving cash of $20,765,978. 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. Cash 1. 20,765,978 Discount on Bonds Payable 834,022 Bonds Payable 21,600,000 2. Interest Expense 1,038,299 Discount on Bonds Payable 66,299 Cash 972,000 Interest Expense 3. 1,041,614 X Discount on Bonds Payable 69,614 Cash 972,000 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 pro equal amounts of amortization over the life of the bond. b. Determine the amount of the bond interest expense for the first year. $ 2,079,913 X c. Why was the company able to issue the bonds for only $20,765,978 rather than for the face amount of $21,600,000? 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. Feedback Check My Work 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. Feedback