Shunda Corporation Wholesales parts to appliance manufactures. On Jan 1 year 1, Shunda Corporation issued $22,000,000...

Shunda Corporation Wholesales parts to appliance manufactures. On Jan 1 year 1, Shunda Corporation issued $22,000,000 of 5 year, 9% bonds at a market (effective) interest rate of 7%, receiving cash of $23,829,684. Interest is payable semiannually. Shunda Corporation's fiscal year begins on Jan 1. The company uses the interest method.

A.Journalize the entries to record the following:

1) Sales of the bonds. Round amounts to the nearest dollar.

2) First semiannual interest payment, including amortization of premium. Round to the nearest dollar.

3) Second semiannual interest payment, including amortization of premium. Round to the nearest dollar.

B. Determine the bond interest expense for the first year. Enter amounts as positive numbers.

Annual interest paid $___

Premium amortized ______

Interest expense for first year $_____

C. Explain why the company was ale to issue the bonds for $23,892,684 rather than the face amount of $22,000,000.

The bonds sell for more than teir face amount because the market rate of interest is _______________ the contract rate of interest. Investors ____________ 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).

Expert Solution

ekkarill92 answered 2 years ago

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