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

On the first day of its fiscal year, Chin Company issued $25,700,000 of five-year, 6% 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 $23,615,396.

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.	Accounts PayableBonds PayableCashInterest ExpenseInterest PayablePremium on Bonds PayableCash	Cash	Cash
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds PayableDiscount on Bonds Payable	Discount on Bonds Payable	Discount on Bonds Payable
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds PayableBonds Payable	Bonds Payable	Bonds Payable
2.	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds PayableInterest Expense	Interest Expense	Interest Expense
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds PayablePremium on Bonds Payable	Premium on Bonds Payable	Premium on Bonds Payable
	Bonds PayableCashDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds PayableCash	Cash	Cash
3.	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds PayableInterest Expense	Interest Expense	Interest Expense
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds PayableDiscount on Bonds Payable	Discount on Bonds Payable	Discount on Bonds Payable
	Bonds PayableCashDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds PayableCash	Cash	Cash

Question Content Area

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

c. Why was the company able to issue the bonds for only $23,615,396 rather than for the face amount of $25,700,000? The market rate of interest is (greater than/ less than) the contract rate of interest. Therefore, inventors (are / are not) willing to pay the full face amount of the bonds.