JournalAdditional Question Final Question Shunda Corporation wholesales parts to
ID: 2566705 • Letter: J
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JournalAdditional Question Final Question Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Shunda i (effective interest rate of 7%, receiving cash of $23,829,684. Interest is payable semiannually. Shunda's fiscal year begins company uses the interest method. ssued $22,000,000 of five-year, 9% bonds at a market on January 1. The Required: a. Journalize the entries to record the foliowing 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 premium. Round to the nearest dollar. 3. Second semiannual interest payment, including amortization of premium. Round to the nearest doliar b. Determine the bond interest expense for the first year. c. Explain why the company was able to issue the bonds for $23,829,684 rather than for the face amount of $22,000,000. 2 more Check My Work uses remaining ) 11/8/Explanation / Answer
Answer a. Journal Entry Date Particulars Dr. Amt. Cr. Amt 1 Cash Dr. 23,829,684 To Bonds Payable 22,000,000 To premium on Bonds Payable 1,829,684 (Record the issue of Bonds) 2 Interest Exp. Dr. 834,039 Premium on Bonds Payable Dr. 155,961 To Cash 990,000 (Record the interest paid on bonds) 3 Interest Exp. Dr. 828,580 Premium on Bonds Payable Dr. 161,420 To Cash 990,000 (Record the interest paid on bonds) Answer b. Bond Interest Expense for First Year 1,662,619 ($834,039 + $828,580) Answer c. The bonds sell for more than their face value because the market rate of Interest is less than the contract rate of interest. Investors are willing to pay more for the bonds that pay a higher rate of interest (contract rate) than the rate they could earn on similar bonds (market rate). Bond Premium Amortization Schedule Date Interest Payment - $22,000,000 X 9% X 6/12 Interest Expense - Preceeding Bond Carrying Amount X 7% X 6/12 Premium Amortization Unamortized Premium Bond Carrying Amount A B C = A- B D = D - C E = $22,000,000 + D 1/1/20X1 - - - 1,829,684 23,829,684 6/30/20X1 990,000 834,039 155,961 1,673,723 23,673,723 12/31/20X1 990,000 828,580 161,420 1,512,303 23,512,303 6/30/20X2 990,000 822,931 167,069 1,345,234 23,345,234 12/31/20X2 990,000 817,083 172,917 1,172,317 23,172,317 6/30/20X3 990,000 811,031 178,969 993,348 22,993,348 12/31/20X3 990,000 804,767 185,233 808,115 22,808,115 6/30/20X4 990,000 798,284 191,716 616,399 22,616,399 12/31/20X4 990,000 791,574 198,426 417,973 22,417,973 6/30/20X5 990,000 784,629 205,371 212,602 22,212,602 12/31/20X5 990,000 777,398 212,602 0 22,000,000
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