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Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method

On the first day of its fiscal year, Jacinto Company issued $14,200,000 of five-year, 11% 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 13%, resulting in Jacinto Company receiving cash of $13,179,242.

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a. Journalize the entries to record the following:

Issuance of the bonds.

First semiannual interest payment. The bond discount amortization is combined with the semiannual interest payment.

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.	Accounts PayableBonds PayableCashInterest ExpenseInterest PayableCash	Cash	Cash
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayableDiscount on Bonds Payable	Discount on Bonds Payable	Discount on Bonds Payable
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayableBonds Payable	Bonds Payable	Bonds Payable
2.	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayableInterest Expense	Interest Expense	Interest Expense
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayableDiscount on Bonds Payable	Discount on Bonds Payable	Discount on Bonds Payable
	Accounts PayableBonds PayableCashInterest ExpenseInterest PayableCash	Cash	Cash
3.	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest Payable	- Select -	- Select -
	Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest PayableDiscount on Bonds Payable	Discount on Bonds Payable	Discount on Bonds Payable
	Accounts PayableBonds PayableCashInterest ExpenseInterest PayableCash	Cash	Cash

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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.

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b. Determine the amount of the bond interest expense for the first year. Round your answer to the nearest dollar. $fill in the blank d4ca8c0b906d066_1

c. Why was the company able to issue the bonds for only $13,179,242 rather than for the face amount of $14,200,000? The market rate of interest is

greater than less thangreater than

the contract rate of interest.

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