Question

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

On the first day of its fiscal year, Chin Company issued $16,200,000 of five-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 9%, resulting in Chin Company receiving cash of $14,918,178.

a. Journalize the entries to record the following:

1. Issuance of the bonds.
2. First semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)
3. Second semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)

For a compound transaction, 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.
$

c. Why was the company able to issue the bonds for only $14,918,178 rather than for the face amount of $16,200,000?
The market rate of interest is________ the contract rate of interest.

2. Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method

Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Daan Corporation issued $5,100,000 of 9-year, 8% bonds at a market (effective) interest rate of 5%, receiving cash of $6,198,031. Interest is payable semiannually on April 1 and October 1.

a. Journalize the entry to record the issuance of bonds on April 1, 2016. For a compound transaction, if an amount box does not require an entry, leave it blank.

b. Journalize the entry to record the first interest payment on October 1, 2016, and amortization of bond premium for six months, using the straight-line method. The bond premium amortization is combined with the semiannual interest payment. (Round to the nearest dollar.) For a compound transaction, if an amount box does not require an entry, leave it blank.

c. Why was the company able to issue the bonds for $6,198,031 rather than for the face amount of $5,100,000?

The market rate of interest is   the contract rate of interest.

3. Entries for Issuing and Calling Bonds; Gain

Emil Corp. produces and sells wind-energy-driven engines. To finance its operations, Emil Corp. issued $1,289,000 of 15-year, 12% callable bonds on May 1, 20Y1, at their face amount, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year.

Journalize the entries to record the following selected transactions:

20Y1
May 1	Issued the bonds for cash at their face amount.
Nov. 1	Paid the interest on the bonds.
20Y5
Nov. 1	Called the bond issue at 95, the rate provided in the bond indenture. (Omit entry for payment of interest.)

Issued the bonds for cash at their face amount.

20Y1, May 1

Paid the interest on the bonds.

20Y1, Nov. 1

Called the bond issue at 95, the rate provided in the bond indenture. (Omit entry for payment of interest.) For a compound transaction, if an amount box does not require an entry, leave it blank.

20Y5, Nov. 1

Answer 1

Based on the information available for Chin company, we can answer the questions as follows:-

Question A:-

The journal entry to record the issuance of the bonds is as follows:-

1.)	Cash A/c	14,918,718
	Discount on Bonds Payable A/c Dr.	1,281,282
	To Bonds Payable A/c		16,200,000
	(To record Bonds issued at premium)

Question B:-

The Bond interest expense under Straight line method is calculated as follows:-

Face value of the Bond - Cash proceeds of the bond = $16,200,000 - $14,918,718 = $1,281,282

Interest is paid semi-annually, therefore the number of interest payments on a five year bond = 5 years * 2 per year = 10 periods.

Under semi annual interest amortization , interest is amortized equally over the life of the bond

=$1,281,282/10 periods

=$128,128

Interest Expense A/c $567,000

To Discount on Bonds Payable A/c $128,128

To Cash A/c $438,872

Question C:-

Why was the company able to issue the bonds for only $14,918,178 rather than the face amount of $16,200,000?

The market rate of interest is Higher than the contract rate of interest and hence the bonds have been issued at a discount. When the bonds are issued at a discount , the cash proceeds are lesser than the face value of the bonds.

Kindly request you to post the remaining question separately so that we can answer them as well. All the best and please let me know if you have any questions via comments :)