Question

Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the first day of its fiscal year, Chin Company issued $26,900,000 of five-year, 5% 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 7%, resulting in Chin Company receiving cash of $24,662,868. 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

Transaction	General Journal	Debit	Credit
a.	Cash	24662868
	Discount on bonds payable	2237132
	Bonds Payable		26900000
(To record issuance of bonds.)
b.	Interest expense ($223,713 + $672,500)	896213
	Discount on bonds payable ($2,237,132/10)		223713
	Cash ($26,900,000 x 5% x 1/20		672500
(To record first semiannual payment of interest.)
c.	Interest expense ($223,713 + $672,500)	896213
	Discount on bonds payable ($2,237,132/10)		223713
	Cash ($26,900,000 x 5% x 1/20		672500
(To record second semiannual payment of interest.)