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On January 1, the first day of its fiscal year, Pretender Company issued $18,500,000 of five-year, 10% bonds to finance its operations of producing and
On January 1, the first day of its fiscal year, Pretender Company issued $18,500,000 of five-year, 10% 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 12%, resulting in Pretender Company receiving cash of $17,138,298.
Required:
A. | Journalize the entries to record the following (refer to the Chart of Accounts for exact wording of account titles):
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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 $17,138,298 rather than for the face amount of $18,500,000. |
CHART OF ACCOUNTS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pretender Company | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General Ledger | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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PAGE 10 JOURNAL Score: 94/112 DATE DESCRIPTION POST. REF DEBIT 1,361,702.00 17,138,298.00 CREDIT Jan. 1 Discount on Bonds Payable Cash Bonds Payable 18,500,000.00 925,000.00 103,298.00 925,000.00 925,000.00 Jun. 30Interest Expense 1,028,298.00 Discount on Bonds Payable Interest Payable 925,000.00 Dec. 31Discount on Bonds Payable Interest Expense 1,034,496.00 Cash 925,000.00
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