Shunda Corporation wholesales parts to appliance manufacturers. On January 1, 2016, Shunda Corporation issued $22,000,000 of...

Shunda Corporation wholesales parts to appliance manufacturers. On January 1, 2016, 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 Corporation’s fiscal year begins on January 1. The company uses the interest method. Required: A. Journalize the entries to record the following transactions. Refer to the Chart of Accounts for exact wording of account titles. 1. Sale of the bonds. 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. 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. QUESTION: 1) What are the dates of the second and third entry of the journal?

Solutions

Expert Solution

Face Value = $22,000,000
Issue Value = $23,829,684

Premium on Bonds Payable = Issue Value - Face Value
Premium on Bonds Payable = $23,829,684 - $22,000,000
Premium on Bonds Payable = $1,829,684

Annual Coupon Rate = 9%
Semiannual Coupon Rate = 4.50%
Semiannual Coupon = 4.50% * $22,000,000
Semiannual Coupon = $990,000

Annual Interest Rate =7%
Semiannual Interest Rate = 3.50%

Answer A.

Answer B.

Interest Expense for first year = $834,039 + $828,580
Interest Expense for first year = $1,662,619

Answer C.

Bonds are issued at value greater than face value because coupon rate of bond is greater than market interest rate.

Answer 1.

Date of second and third journal entry is June 30, 2016 and December 31, 2016

ekkarill92 answered 1 year ago

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