On the first day of its fiscal year, Ebert Company issued $15,000,000 of 5-year, 9% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 10%, resulting in Ebert receiving cash of $14,420,825. The company uses the interest method.

a. Journalize the entries to record the following:

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1. Sale of the bonds. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

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2. First semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

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3. Second semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

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b. Compute the amount of the bond interest expense for the first year. Round to the nearest dollar.

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c. Explain why the company was able to issue the bonds for only $14,420,825 rather than for the face amount of $15,000,000. The bonds sell for less than their face amount because the market rate of interest is fill in the blank 1 of 2

greater thansmaller thanthe same as

the contract rate of interest. Investors fill in the blank 2 of 2

areare not

willing to pay the full face amount for bonds that pay a lower contract rate of interest than the rate they could earn on similar bonds (market rate).