Question

Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method

On the first day of its fiscal year, Chin Company issued $11,000,000 of five-year, 6% 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 Chin receiving cash of $10,107,757.

a. Journalize the entries to record the following:

1. Issuance of the bonds.
2. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)
3. Second semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)

If an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar.

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.
$

Answer 1

Par value of bonds			1,10,00,000
Issued price of bonds		1,01,07,757
Total discount			8,92,243
Divide: Number of interest periods	10
Discount amortized each period		89224.3
Semi annual cash interest = 11000,000*6%*6/12 =	330000
Journal entries
S.no.	Accounts title and explanations		Debit $	Credit $
a	Cash account			1,01,07,757
	Discount on bonds payable		8,92,243
	Bonds payable				1,10,00,000
	(for issuance of bonds)
b.	Interest expense			4,19,224
	Discount on bonds payable			89224
	Cash account				3,30,000
	(for interest expnses)
c.	Interest expense			4,19,224
	Discount on bonds payable			89224
	Cash account				3,30,000
	(for interest expnses)
Bond Interest expense for Year-1 (419224+419224):	838448