Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method
On the first day of its fiscal year, Chin Company issued $17,800,000 of five-year, 12% 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 14%, resulting in Chin receiving cash of $16,549,813.
a. Journalize the entries to record the following:
If an amount box does not require an entry, leave it blank.
| 1. | Cash |
| Discount on Bonds Payable | |
| Bonds Payable | |
| 2. | Interest Expense |
| Discount on Bonds Payable | |
| Cash | |
| 3. | Interest Expense |
| Discount on Bonds Payable | |
| Cash |
b. Determine the amount of the bond interest expense for the first year.
Amortize Discount by Interest Method
On the first day of its fiscal year, Ebert Company issued $20,000,000 of 5-year, 11% 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 $19,264,099. The company uses the interest method.
a. Journalize the entries to record the following:
1. Sale of the bonds. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.
| Cash | |||
| Discount on Bonds Payable | |||
| Bonds Payable |
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.
| Interest Expense | |
| Discount on Bonds Payable | |
| Cash |
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.
| Interest Expense | |
| Discount on Bonds Payable | |
| Cash |
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 |
Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method
On the first day of its fiscal year, Jacinto Company issued $6,500,000 of six-year, 7% 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 8%, resulting in Jacinto Company receiving cash of $6,194,985.
a. Journalize the entries to record the following:
If an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar.
On the first day of its fiscal year, Ebert Company issued $12,500,000 of 10-year, 7% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 9%, resulting in Ebert receiving cash of $10,873,974. The company uses the interest method.
a. Journalize the entries to record the following transactions. Refer to the Chart of Accounts for exact wording of account titles.
|
|||||||
| 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 $10,873,974 rather than for the face amount of $12,500,000. |
On the first day of its fiscal year, Chin Company issued $13,300,000 of five-year, 9% 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 10%, resulting in Chin receiving cash of $12,786,458.
a. Journalize the entries to record the following:
If an amount box does not require an entry, leave it blank.
On the first day of its fiscal year, Chin Company issued $17,000,000 of five-year, 11% 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 13%, resulting in Chin receiving cash of $15,777,966.
a. Journalize the entries to record the following:
If an amount box does not require an entry, leave it blank.
| 1. | Cash | fill in the blank 19cb9903707bf8f_2 | fill in the blank 19cb9903707bf8f_3 |
| Discount on Bonds Payable | fill in the blank 19cb9903707bf8f_5 | fill in the blank 19cb9903707bf8f_6 | |
| Bonds Payable | fill in the blank 19cb9903707bf8f_8 | fill in the blank 19cb9903707bf8f_9 | |
| 2. | Interest Expense | fill in the blank 19cb9903707bf8f_11 | fill in the blank 19cb9903707bf8f_12 |
| Discount on Bonds Payable | fill in the blank 19cb9903707bf8f_14 | fill in the blank 19cb9903707bf8f_15 | |
| Cash | fill in the blank 19cb9903707bf8f_17 | fill in the blank 19cb9903707bf8f_18 | |
| 3. | Interest Expense | fill in the blank 19cb9903707bf8f_20 | fill in the blank 19cb9903707bf8f_21 |
| Discount on Bonds Payable | fill in the blank 19cb9903707bf8f_23 | fill in the blank 19cb9903707bf8f_24 | |
| Cash | fill in the blank 19cb9903707bf8f_26 | fill in the blank 19cb9903707bf8f_27 |
b. Determine the amount of the bond interest expense for the first year.
On the first day of its fiscal year, Chin Company issued $17,000,000 of five-year, 11% 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 13%, resulting in Chin receiving cash of $15,777,966.
a. Journalize the entries to record the following:
If an amount box does not require an entry, leave it blank.
| 1. | Cash | fill in the blank 19cb9903707bf8f_2 | fill in the blank 19cb9903707bf8f_3 |
| Discount on Bonds Payable | fill in the blank 19cb9903707bf8f_5 | fill in the blank 19cb9903707bf8f_6 | |
| Bonds Payable | fill in the blank 19cb9903707bf8f_8 | fill in the blank 19cb9903707bf8f_9 | |
| 2. | Interest Expense | fill in the blank 19cb9903707bf8f_11 | fill in the blank 19cb9903707bf8f_12 |
| Discount on Bonds Payable | fill in the blank 19cb9903707bf8f_14 | fill in the blank 19cb9903707bf8f_15 | |
| Cash | fill in the blank 19cb9903707bf8f_17 | fill in the blank 19cb9903707bf8f_18 | |
| 3. | Interest Expense | fill in the blank 19cb9903707bf8f_20 | fill in the blank 19cb9903707bf8f_21 |
| Discount on Bonds Payable | fill in the blank 19cb9903707bf8f_23 | fill in the blank 19cb9903707bf8f_24 | |
| Cash | fill in the blank 19cb9903707bf8f_26 | fill in the blank 19cb9903707bf8f_27 |
Feedback
b. Determine the amount of the bond interest expense for the first year.
$fill in the blank 2ee79df34f9dfc0_1
c. Why was the company able to issue the bonds for only $15,777,966 rather than for the face amount of $17,000,000?
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.
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