On the first day of its fiscal year, Ebert Company issued $35,000,000 of 10 year, 10 bonds to finance its operations Interest is payable semiannually The bonds were issued at a market (effective) interest rate of 12 , resulting in Ebert receiving cash of $30,985,360 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 on January 1 2 First semiannual interest payment on June 30, including amortization of discount Round to the nearest dollar 3 Second semiannual interest payment on December 31, 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 $30,985,360 rather than for the face amount of $35,000,000 CHART OF ACCOUNTS Ebert Company General Ledger ASSETS 110 Cash 111 Petty Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 126 Interest Receivable 127 Notes Receivable 131 Merchandise Inventory 141 Office Supplies 142 Store Supplies 151 Prepaid Insurance 191 Land 192 Store Equipment 193 Accumulated Depreciation Store Equipment 194 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 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 REVENUE 410 Sales 610 Interest Revenue 611 Gain on Redemption of Bonds EXPENSES 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 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 Miscellaneous Expense 710 Interest Expense 711 Loss on Redemption of Bonds a Journalize the entries to record the transactions Refer to the Chart of Accounts for exact wording of account titles Round to the nearest dollar How does grading work PAGE 10 JOURNAL ACCOUNTING EQUATION Score 81 112 b Compute the amount of the bond interest expense for the first year Enter amounts as a positive number Annual interest paid Discount amortized Interest expense for first year

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On the first day of its fiscal year, Ebert Company issued $35,000,000 of 10-year, 10% bonds to finance its operations. Interest is payable semiannually. The

On the first day of its fiscal year, Ebert Company issued $35,000,000 of 10-year, 10% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 12%, resulting in Ebert receiving cash of $30,985,360. 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 on January 1.
2.	First semiannual interest payment on June 30, including amortization of discount. Round to the nearest dollar.
3.	Second semiannual interest payment on December 31, 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 $30,985,360 rather than for the face amount of $35,000,000.

CHART OF ACCOUNTS

Ebert Company

General Ledger

	ASSETS
110	Cash
111	Petty Cash
121	Accounts Receivable
122	Allowance for Doubtful Accounts
126	Interest Receivable
127	Notes Receivable
131	Merchandise Inventory
141	Office Supplies
142	Store Supplies
151	Prepaid Insurance
191	Land
192	Store Equipment
193	Accumulated Depreciation-Store Equipment
194	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

	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

	REVENUE
410	Sales
610	Interest Revenue
611	Gain on Redemption of Bonds

	EXPENSES
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
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	Miscellaneous Expense
710	Interest Expense
711	Loss on Redemption of Bonds

a. Journalize the entries to record the transactions. Refer to the Chart of Accounts for exact wording of account titles. Round to the nearest dollar.

How does grading work?

PAGE 10

JOURNAL

ACCOUNTING EQUATION

Score: 81/112

b. Compute the amount of the bond interest expense for the first year. Enter amounts as a positive number.