Journal Additional Question On the first day of its fiscal year, Ebert Company i

Question

Journal Additional Question On the first day of its fiscal year, Ebert Company issued $54,000,000 of 10-year, 8% bonds to finance its operations. Interest is semiannually. The bonds were issued at a market (effective) interest rate of 9%, resulting in Ebert receiving uses the interest method. payable cash of $50,487,710. The company Required: a. Journalize the entries to record the following transactions. Refer to the Chart of Accounts for exact wording of account titles 1. Sale of the bonds 2. First semiannual interest payment, including amortization of discount. Round to the nearest dollar. 3. Second semiannual interest payment, including amortization of discount. Round to the nearest dollar. b. Compute the amount of the bond interest expense for the first year. c. Explain why the company was able to issue the bonds for only $50,487,710 rather than for the face amount of $54,000,000 Previous Ne 6 34 Check My Work IO

Explanation / Answer

SOLUTION

(A) Journal Entries-

* The unamortized discount is $3,512,290 - $111,947 = $3,400,343

The carrying amount of the bond is $54,000,000 - $3,400,343 = $50,599,657

The interest expense is = $50,599,657*9%*1/2 = $2,276,985

(B)

S.No. Accounts title and Explanations Debit ($) Credit ($) 1. Cash 50,487,710 Discount on bonds payable 3,512,290 Bonds payable 54,000,000 (To record issuance of bonds) 2. Interest Expense (50,487,710*9%*1/2) 2,271,947 Discount on Bonds Payable 111,947   Cash (54,000,000*8%*1/2) 2,160,000 (To record First semiannual interest payment) 3. Interest Expense* $2,276,985   Discount on Bonds Payable 116,985 Cash (54,000,000*8%*1/2) 2,160,000 (To record Second semiannual interest payment)

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