On January 1, the first day of its fiscal year, Ebert company issued $53,500,000 of 10 year, 6% bonds to finance operations. Interest is payable semi annually. The bonds are issued at a market effective interest rate of 7%, resulting in Ebert Company receiving cash of $49,698,397. 1.) journalize the entry to record the following transactions. Refer to the chart of accounts for exact wording of account titles

Instructions On January 1, the first day of its fiscal year, Ebert Company issued $53,500,000 of 10-year, 6% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 7%, resulting in Ebert Company receiving cash of $49,698,397. The company uses the interest method. Required: A. Journalize the entries to record the following transactions. Refer to the Chart of Accounts for exact wording of account titles. 1. Sale of the bonds. 2. First semiannual interest payment, including amortization of discount. Round to the nearest dollar. 3. Second semiannual interest payment, including amortization of discount. Round to the nearest dollar. B. Compute the amount of the bond interest expense for the first year. C. Explain why the company was able to issue the bonds for only $49,698, 397 rather than for the face amount of $53,500,000 Chart of Accounts ASSETS REVENUE 110 Cash 410 Sales 111 Petty Cash 610 Interest Revenue 121 Accounts Receivable 611 Gain on Redemption of Bonds EXPENSES 122 Allowance for Doubtful Accounts 126 Interest Receivable 127 Notes Receivable 131 Merchandise Inventory 141 Office Supplies 142 Store Supplies 151 Prepaid Insurance 510 Cost of Merchandise Sold 515 Credit Card Expense 516 Cash Short and Over 521 Sales Salaries Expense 522 Office Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Repairs Expense 534 Selling Expenses 535 Rent Expense 191 Land 192 Store Equipment 193 Accumulated Depreciation-Store Equipment 194 Office Equipment 195 Accumulated Depreciation Office Equipment 195 Accumulated Depreciation Office Equipment LIABILITIES 210 Accounts Payable 221 Salaries Payable 231 Sales Tax Payable 232 Interest Payable 241 Notes Payable 251 Bonds Payable 252 Discount on Bonds Payable 253 Premium on Bonds Payable 535 Rent Expense 536 Insurance Expense 537 Office Supplies Expense 538 Store Supplies Expense 541 Bad Debt Expense 561 Depreciation Expense-Store Equipment 562 Depreciation Expense-Office Equipment 590 Miseellaneous Expense 710 Interest Expense 711 Loss on Redemption of Bonds EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 315 Treasury Stock Amortize discount by interest method Instructions Chart of Accounts Journal Additional Question Chart of Accounts 252 Discount on Bonds Payable 253 Premium on Bonds Payable 711 Loss on Redemption of Bonds EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 315 Treasury Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 351 Cash Dividends 352 Stock Dividends 390 Income Summary a JOURNAL DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2 3 4 5 6 8 9 Additional Question 3. Compute the amount of the bond interest expense for the first year. Annual interest paid $ Discount amortized Interest expense for first year $ hy amortize discount by interest method Instructions Chart of Accounts Journal Additional Question Final Question C. Explain why the company was able to issue the bonds for only $49,698,397 rather than for the face amount of $53,500,000 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)