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Ch 14-3 Exercises and Problems

1. EX.14-05.BLANKSHEET.ALGO
2. EX.14-06.ALGO
3. EX.14-07.ALGO
4. EX.14-08.BLANKSHEET.ALGO
5. EX.14-09.ALGO
6. EX.14-12.ALGO
7. EX.14-14.ALGO

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

   On the first day of its fiscal year, Chin Company issued $20,900,000 of five-year, 9% 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 11%, resulting in Chin Company receiving cash of $19,324,628.

   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	fill in the blank 11ecaef68f95fec_2	fill in the blank 11ecaef68f95fec_3
   	Discount on Bonds Payable	fill in the blank 11ecaef68f95fec_5	fill in the blank 11ecaef68f95fec_6
   	Bonds Payable	fill in the blank 11ecaef68f95fec_8	fill in the blank 11ecaef68f95fec_9
   2.	Interest Expense	fill in the blank 11ecaef68f95fec_11	fill in the blank 11ecaef68f95fec_12
   	Discount on Bonds Payable	fill in the blank 11ecaef68f95fec_14	fill in the blank 11ecaef68f95fec_15
   	Cash	fill in the blank 11ecaef68f95fec_17	fill in the blank 11ecaef68f95fec_18
   3.	Interest Expense	fill in the blank 11ecaef68f95fec_20	fill in the blank 11ecaef68f95fec_21
   	Discount on Bonds Payable	fill in the blank 11ecaef68f95fec_23	fill in the blank 11ecaef68f95fec_24
   	Cash	fill in the blank 11ecaef68f95fec_26	fill in the blank 11ecaef68f95fec_27

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   Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of amortization provides equal amounts of amortization over the life of the bond.

   b. Determine the amount of the bond interest expense for the first year.
   $fill in the blank e4ddf9fbb047ff5_1

   c. Why was the company able to issue the bonds for only $19,324,628 rather than for the face amount of $20,900,000?
   The market rate of interest is greater than  the contract rate of interest.

Answer 1

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	19324628
	Discount on Bonds Payable	1575372
	Bonds Payable		20900000
2.	Interest Expense	1098037
	Discount on Bonds Payable (1575372/10)		157537
	Cash (20900000*9%*6/12)		940500
3.	Interest Expense	1098037
	Discount on Bonds Payable		157537
	Cash		940500

b. Determine the amount of the bond interest expense for the first year.
$1098037*2 = $2196074

c. Why was the company able to issue the bonds for only $19,324,628 rather than for the face amount of $20,900,000?
The market rate of interest is greater than the contract rate of interest.