On the first day of its fiscal year, Chin Company issued $10,000,000 of five-year, 7% 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 8%, resulting in Chin Company receiving cash of $9,594,415.a. Journalize the entries to record the following:1. Issuance of the bonds.2. First semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment. Round your answer to the nearest dollar.3. Second semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment. Round your answer to the nearest dollar.b. Determine the amount of the bond interest expense for the first year.c. Explain why the company was able to issue the bonds for only $9,594,415 rather than for the face amount of $10,000,000.

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Asked Dec 19, 2019
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On the first day of its fiscal year, Chin Company issued $10,000,000 of five-year, 7% 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 8%, resulting in Chin Company receiving cash of $9,594,415.
a. Journalize the entries to record the following:
1. Issuance of the bonds.
2. First semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment. Round your answer to the nearest dollar.
3. Second semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment. Round your answer to the nearest dollar.
b. Determine the amount of the bond interest expense for the first year.
c. Explain why the company was able to issue the bonds for only $9,594,415 rather than for the face amount of $10,000,000.

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Expert Answer

Step 1

Requirement a.1, a.2 and a.3:

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Debit (S) Credit (S) Date Account Title L.F Jun-01 Cash |Discount on bonds payable Bonds payable (To record the issuance of bonds payable) a.1. 95,94,415 4,05,585 |1,00,00,000 Jun-30 Interest expense Discount on bonds payable (S405,585/10) a.2. 3,90,559 40,559 Cash ($10,000,000 × 3.5%) 3,50,000 (To record the first semi anmual interest payments) Dec-31 Interest expenses |Discount on bonds payable 390.559 a.3. 40,559 3,50,000 Cash (To record the second semi-anmual interest payment)

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Step 2

Requirement b:

 

Compute the amount of bond expense for the first year....

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Amount ($) Particulars |Interest expense ($350,000 + $350,000) Add: Discount amortized ($40,559 + $40,559) Interest expense (First year) 7,00,000 81,117 7,81,117

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