On the first day of its fiscal year, Ebert Company issued $18,000,000 of 5-year, 10% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 11%, resulting in Ebert receiving cash of $17,321,607. 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. If an amount box does not require an entry, leave it blank.

		fill in the blank 04ed4cfd9fa3f8a_2	fill in the blank 04ed4cfd9fa3f8a_3
		fill in the blank 04ed4cfd9fa3f8a_5	fill in the blank 04ed4cfd9fa3f8a_6
		fill in the blank 04ed4cfd9fa3f8a_8	fill in the blank 04ed4cfd9fa3f8a_9

2. First semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

		fill in the blank aa144bf9704dfbb_2	fill in the blank aa144bf9704dfbb_3
		fill in the blank aa144bf9704dfbb_5	fill in the blank aa144bf9704dfbb_6
		fill in the blank aa144bf9704dfbb_8	fill in the blank aa144bf9704dfbb_9

3. Second semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

		fill in the blank f0991b038057ff6_2	fill in the blank f0991b038057ff6_3
		fill in the blank f0991b038057ff6_5	fill in the blank f0991b038057ff6_6
		fill in the blank f0991b038057ff6_8	fill in the blank f0991b038057ff6_9

b. Compute the amount of the bond interest expense for the first year. Round amounts to the nearest dollar.

Annual interest paid	$fill in the blank e0a620f43fb4fbc_1
Discount amortized	fill in the blank e0a620f43fb4fbc_2
Interest expense for first year	$fill in the blank e0a620f43fb4fbc_3

c. Explain why the company was able to issue the bonds for only $17,321,607 rather than for the face amount of $18,000,000.

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).