On the first day of its fiscal year, Ebert Company issued $22,000,000 of 5-year, 9% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 10%, resulting in Ebert Company receiving cash of $21,150,543. The company uses the interest method.

Journalize the entries to record the following

Sale of bonds. Round to the nearest dollar.

First semiannual interest payment, including amortization of discount

Second semiannual interest payment, including amortization amount of discount.

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

Annual interest paid $_______

Discount amortized ________

Interest Expense for first year $________

Explain why the company was able to issue the bonds for only $21,150,543 rather than the face amount of $22,000,000.

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 of bonds that pay a lower contract rate of interest than the rate they could earn on similar bonds (market rate).