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Instructions Chart of Accounts Journal Final Questions - Instructions On January the first day of its fiscal year, Chin Company issued $10,000,000 of five-year, 7%
Instructions Chart of Accounts Journal Final Questions - Instructions On January the first day of its fiscal year, Chin Company issued $10,000,000 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 8%, resulting in Chin Company receiving cash of $9,594,415. Required: A. Journalize the entries to record the following (refer to the Chart of Accounts for exact wording of account titles): 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) 3. Second semiannual interest payment. The bond discount amortization, using the straight-line method, 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. C. Explain why the company was able to issue the bonds for only $9,594 415 rather than for the face amount of $10,000,000. Final Questions B. Determine the amount of the bond interest expense for the first year. C. Explain why the company was able to issue the bonds for only $9,594.415 rather than for the face amount of $10,000,000 The bonds sell for less than their face amount because the market rate of interest is the contract rate of interest. Investors willing to pay the full face amount for bonds that pay a lower contract rate of interest than the rate they could earn on similar bonds (market rate)
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