Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the first day of its fiscal year, Jacinto Company issued $27,600,000 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 6%, resulting in Jacinto Company receiving cash of $26,422,722. 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. 3. Second semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment. If an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar. 1. Cash V Discount on Bonds Payable Bonds Payable 2. Interest Expense -✓ Discount on Bonds Payable Cash ✓ 3. Interest Expense Feedback Discount on Bonds Payable Cash ✓ ✓ ✓ ✓ ✓ 300 000 000 000 000 000 EE 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. b. Determine the amount of the bond interest expense for the first year. Round your answer to the nearest dollar. c. Why was the company able to issue the bonds for only $26,422,722 rather than for the face amount of $27,600,000? ✔ the contract rate of interest. The market rate of interest is greater than
Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the first day of its fiscal year, Jacinto Company issued $27,600,000 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 6%, resulting in Jacinto Company receiving cash of $26,422,722. 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. 3. Second semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment. If an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar. 1. Cash V Discount on Bonds Payable Bonds Payable 2. Interest Expense -✓ Discount on Bonds Payable Cash ✓ 3. Interest Expense Feedback Discount on Bonds Payable Cash ✓ ✓ ✓ ✓ ✓ 300 000 000 000 000 000 EE 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. b. Determine the amount of the bond interest expense for the first year. Round your answer to the nearest dollar. c. Why was the company able to issue the bonds for only $26,422,722 rather than for the face amount of $27,600,000? ✔ the contract rate of interest. The market rate of interest is greater than
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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