Question

On the first day of its fiscal year, Chin Company issued $10,800,000 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 12%, resulting in Chin Company receiving cash of $10,402,505. a. Journalize the entries to record the following: Issuance of the bonds. 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.) 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.

Answer 1

Solution:

Chin Company
Journal Entries
Event	Particulars	Debit	Credit
1	Cash Dr	$10,402,505.00
	Discount on issue of bond Dr	$397,495.00
	To Bond Payable		$10,800,000.00
	(To record issue of bond)
2	Interest expense Dr	$633,750.00
	To Cash ($10,800,000*11%*6/12)		$594,000.00
	To Discount on issue of bond ($397,495/10)		$39,750.00
	(To record first semiannual interest payment and discount amortization)
3	Interest expense Dr	$633,750.00
	To Cash ($10,800,000*11%*6/12)		$594,000.00
	To Discount on issue of bond ($397,495/10)		$39,750.00
	(To record 2nd semiannual interest payment and discount amortization)