number 2, 3, B & C
eBook Amortize Discount by Interest Method On the first day of its fiscal year, Ebert Company issued 519,000,000 of 5 year, 11% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 13%, resulting in Ebert Company receiving cash of $17,634,197. The company uses the interest method a. Journalize the entries to record the following: 1. Sale of the bonds. Round amounts to the nearest dollar. For a compound transaction. If an amount box does not require an entry, leave it blank Cash 17.634,197 Discount on Bonds Payable 1,365.000 Bonds Payable 19,000,000 Foto Check My Wor As the discount or premium is amore, the carrying amount of the bond changes. As a result, interest expense also changes each period. 2. First semiannual interest payment, including amortization of discount, Round to the nearest dolor. For a compound transaction, if an amount box does not require an entry leave it blank Interest Expense Discount on Bonds Payable 9 Cash Feedback Che W 2. Cash received for instance semiannual market rate time interest expense (debit). Prinopal semiannual contract rate time conh naid (red). The discount amortized (credit) is the difference between the two amounts Previous Now) Check My Work eBook 3. Second semiannual interest payment, including amortization of discount. Round to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank Interest Expense Discount on Bonds Payable Cash Fotok Check My Work 3. Cash received + discount amortized) x semiannual market rate x time interest expense (debit), Principal semiannual contract rate time cash paid (credit) The discount amortized (credit) is the difference between the two amounts b. Compute the amount of the bond interest expense for the first year Round amounts to the nearest dotter Annual interest paid Discount amortized Interest expense for first year My W As the discount or premium is amortired, the carrying amount of the bond changes. As a result, Interest expense also changes each period Compare the rate on the bonds and the market rate. Recall that if the market rate of interest is more than the contract rate of interest, the bonds will sell for less than their face amount, because investors are not willing to pay the full face amount for bands that pay a lower contract rate of interest than the rate they could earn an similar bonds (market rate) Check My Work Previous Next Annual interest paid Discount amortized Interest expense for first year Foodbach Check My Work As the discount or premium is amortized, the carrying amount of the bond changes. As a result, interest expense also changes each period Compare the rate on the bonds and the market rate. Recall that of the market rate of interest is more than the contract rate of interest, the bonds will sell for less than their face amount, because investors are not 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) c. Explain why the company was able to be the bonds for only $17,634,197 rather than for the face amount of $19,000,000 The bonds sell for less than their face amount because the market rate of interest is the contract rate of interest. Investors 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) Fachack Check My Work Incorrect Food Check My Wor Partially correct Check My Work
