On the first day of its fiscal year, Chin Company issued $24,100,000 of five-year, 5% 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 7%, resulting in Chin receiving cash of $22,095,730. a. Journalize the entries to record the following: 1. Issuance of the bonds 2. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) 3. 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. Cash 22,095,730 2,004,270 Discount on Bonds Payable Bonds Payable 24,100,000 773,357 X 2. Interest Expense Discount on Bonds Payable Cash 170,851 602,500 779.330 X 3. Interest Expense Discount on Bonds Payable 176,830 X Cash 602,500 773.351 X 2. Interest Expense Discount on Bonds Payable Cash 170,851 X 602,500 779,330 X 3. Interest Expense Discount on Bonds Payable 176,830 x Cash 602.500 Feedback Check My Work Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of amortization provides equal amounts of amortization over the life of the bond. b. Determine the amount of the bond interest expense for the first year, 1,552,681 c. Why was the company able to issue the bonds for only $22,095,730 rather than for the face amount of $24,100,000? The market rate of interest is greater than the contract rate of interest. Therefore, inventors are not willing to pay the full face amount of the bonds Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, 2011, Smiley issued $7,300,000 of 8-year, 9% bonds at a market (effective) interest rate of 8%, receiving cash of $7,725,309. Interest is payable semiannually on April 1 and October 1. a. Journalize the entry to record the issuance of bonds on April 1, 2071. If an amount box does not require an entry, leave it blank. Cash Premium on Bonds Payable Bonds Payable Accounting numeric field b. Journalize the entry to record the first interest payment on October 1, 2011, and amortization of bond premium for six months, using the straight-line method. Round to the nearest dollar. If an amount box does not require an entry, leave it blank, Interest Expense Premium on Bonds Payable Cash k 58 c. Why was the company able to issue the bonds for $7,725,309 rather than for the face amount of $7,300,000? The market rate of interest is less than the contract rate of interest
