a. Journalize the entries to record the following: 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) 3. Second semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) If an amount box does not require an entry, leave it blank. 1. Cash Discount 12,532,777

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Chapter13: Long-term Liabilities
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Problem 5PB: Dixon Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1,...
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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 $13,000,000 of 5-year, 12% 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 13%, resulting in Chin receiving cash of $12,532,777.
a. Journalize the entries to record the following:
1. Issuance of the bonds.
2. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)
3. Second semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)
If an amount box does not require an entry, leave it blank.
1. Cash
Discount on Bonds Payable
Bonds Payable
780,000
780,000
பம் பம் பம்
12,532,777
467,223
13,000,000
2. Interest Expense
Discount on Bonds Payable
Cash
814,631 X
780,000 X
3. Interest Expense
Discount on Bonds Payable
Cash
816,882 X
36,882 X
▼ Check My Work
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.
Feedback
b. Determine the amount of the bond interest expense for the first year.
1,631,512 X
c. Why was the company able to issue the bonds for only $12,532,777 rather than for the face amount of $13,000,000?
The market rate of interest is greater than
the contract rate of interest. Therefore, inventors are not
willing to pay the full face amount of the bonds.
Transcribed Image Text:Entries for issuing bonds and amortizing discount by straight-line method On the first day of its fiscal year, Chin Company issued $13,000,000 of 5-year, 12% 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 13%, resulting in Chin receiving cash of $12,532,777. a. Journalize the entries to record the following: 1. Issuance of the bonds. 2. First semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) 3. Second semiannual interest payment. The bond discount is combined with the semiannual interest payment. (Round your answer to the nearest dollar.) If an amount box does not require an entry, leave it blank. 1. Cash Discount on Bonds Payable Bonds Payable 780,000 780,000 பம் பம் பம் 12,532,777 467,223 13,000,000 2. Interest Expense Discount on Bonds Payable Cash 814,631 X 780,000 X 3. Interest Expense Discount on Bonds Payable Cash 816,882 X 36,882 X ▼ Check My Work 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. Feedback b. Determine the amount of the bond interest expense for the first year. 1,631,512 X c. Why was the company able to issue the bonds for only $12,532,777 rather than for the face amount of $13,000,000? The market rate of interest is greater than the contract rate of interest. Therefore, inventors are not willing to pay the full face amount of the bonds.
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