Question

# On the first day of its fiscal year, Chin Company issued \$10,800,000 of five-year, 11% bonds...

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.

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)

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