Amortize Discount by Interest MethodOn the first day of its fiscal year, Ebert Company issued $23,000,000 of 5-year, 10% bonds to finance its operations. Interest is payable semiannually. The bonds wereissued at a market (effective) interest rate of 12%, resulting in Ebert receiving cash of $21,307,304. The company uses the interest method.a. Journalize the entries to record the following:1. Sale of the bonds. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.Cash21,307,304Discount on Bonds Payable1,692,696Bonds Payable v23,000,000FeedbackCheck My Work2. First semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.Interest Expense vDiscount on Bonds Payable vCash vFeedbackCheck My Work 3. Second semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.Interest ExpenseDiscount on Bonds Payable vCash vFeedbackCheck My Workb. Compute the amount of the bond interest expense for the first year. Round to the nearest dollar.Annual interest paidDiscount amortizedInterest expense for first year$4FeedbackCheck My Workc. Explain why the company was able to issue the bonds for only $21,307,304 rather than for the face amount of $23,000,000.The bonds sell for less than their face amount because the market rate of interest is greater thanthe contract rate of interest. Investors are not v willing topay the full face amount for bonds that pay a lower contract rate of interest than the rate they could earn on similar bonds (market rate).Feedback

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Amortize Discount by Interest Method On the first day of its fiscal year, Ebert Company issued $23,000,000 of 5-year, 10% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 12%, resulting in Ebert receiving cash of $21,307,304. The company uses the interest method. a. Journalize the entries to record the following: 1. Sale of the bonds. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Cash v 21,307,304 Discount on Bonds Payable v 1,692,696 Bonds Payable 23,000,000 V Feedback Check My Work 2. First semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Interest Expense v Discount on Bonds Payable v Cash v Feedback Check My Work

Amortize Discount by Interest Method On the first day of its fiscal year, Ebert Company issued $23,000,000 of 5-year, 10% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 12%, resulting in Ebert receiving cash of $21,307,304. The company uses the interest method. a. Journalize the entries to record the following: 1. Sale of the bonds. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Cash v 21,307,304 Discount on Bonds Payable v 1,692,696 Bonds Payable 23,000,000 V Feedback Check My Work 2. First semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Interest Expense v Discount on Bonds Payable v Cash v Feedback Check My Work

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 7MCQ

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