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

On the first day of its fiscal year, Chin Company issued $10,400,000 of five-year, 5% 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 7%, resulting in Chin receiving cash of $9,535,087.

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.

• Accounts Payable
• Bonds Payable
• Cash
• Interest Expense
• Interest Payable
• Premium on Bonds Payable

1.		fill in the blank 2bb932fa201efe9_2	fill in the blank 2bb932fa201efe9_3
		fill in the blank 2bb932fa201efe9_5	fill in the blank 2bb932fa201efe9_6
		fill in the blank 2bb932fa201efe9_8	fill in the blank 2bb932fa201efe9_9
2.		fill in the blank 2bb932fa201efe9_11	fill in the blank 2bb932fa201efe9_12
		fill in the blank 2bb932fa201efe9_14	fill in the blank 2bb932fa201efe9_15
		fill in the blank 2bb932fa201efe9_17	fill in the blank 2bb932fa201efe9_18
3.		fill in the blank 2bb932fa201efe9_20	fill in the blank 2bb932fa201efe9_21
		fill in the blank 2bb932fa201efe9_23	fill in the blank 2bb932fa201efe9_24

1. b. Determine the amount of the bond interest expense for the first year. $fill in the blank 3df0bdf42fc205d_1

   c. Why was the company able to issue the bonds for only $9,535,087 rather than for the face amount of $10,400,000? The market rate of interest is the contract rate of interest. Therefore, inventors willing to pay the full face amount of the bonds.