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

On the first day of its fiscal year, Chin Company issued $14,800,000 of five-year, 12% 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 14%, resulting in Chin receiving cash of $13,760,519.

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.)

b. Determine the amount of the bond interest expense for the first year. $fill in the blank fdb6bef4e06407e_1

c. Why was the company able to issue the bonds for only $13,760,519 rather than for the face amount of $14,800,000? The market rate of interest is ____ the contract rate of interest. Therefore, inventors ___ willing to pay the full face amount of the bonds.