Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Year 1, Shunda Corporation issued $22,000,000 of five-year, 9% bonds at a market (effective) interest rate of 7%, receiving cash of $23,829,684. Interest is payable semiannually. Shunda Corporations fiscal year begins on January 1. The company uses the interest method.

a. Journalize the entries to record the following:

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1. Sale of the bonds. Round amounts to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank.

blank	Bonds PayableCashDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds Payable	- Select -	- Select -
	Accounts PayableCashDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds Payable	- Select -	- Select -
	Accounts PayableBonds PayableCashDiscount on Bonds PayableInterest ExpenseInterest Payable	- Select -	- Select -

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2. First semiannual interest payment, including amortization of premium. Round to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank.

blank	Accounts PayableBonds PayableCashDiscount on Bonds PayableInterest ExpenseInterest Payable	- Select -	- Select -
	Accounts PayableBonds PayableCashDiscount on Bonds PayableInterest PayablePremium on Bonds Payable	- Select -	- Select -
	Bonds PayableCashDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds Payable	- Select -	- Select -

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3. Second semiannual interest payment, including amortization of premium. Round to the nearest dollar. For a compound transaction, if an amount box does not require an entry, leave it blank.

blank	Accounts PayableBonds PayableCashDiscount on Bonds PayableInterest PayableInterest Expense	- Select -	- Select -
	Accounts PayableBonds PayableCashDiscount on Bonds PayableInterest PayablePremium on Bonds Payable	- Select -	- Select -
	Bonds PayableCashDiscount on Bonds PayableInterest PayableInterest ExpensePremium on Bonds Payable	- Select -	- Select -

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b. Determine the bond interest expense for the first year. Enter amounts as positive numbers. Round amounts to the nearest dollar.

Annual interest paid	$fill in the blank 71fe800aa018fbc_1
Premium amortized	fill in the blank 71fe800aa018fbc_2
Interest expense for first year	$fill in the blank 71fe800aa018fbc_3

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c. Explain why the company was able to issue the bonds for $23,829,684 rather than for the face amount of $22,000,000.

The bonds sell for more than their face amount because the market rate of interest is

greater thanless thanthe same as

the contract rate of interest. Investors

are notare

willing to pay more for bonds that pay a higher rate of interest (contract rate) than the rate they could earn on similar bonds (market rate).