Answer and Explanation:
According to the scenario, computation of the given data are as follow:-
Total Years = 5, semiannually = 5 × 2 = 10
Rate = 7% yearly, semiannually rate = 7 ÷ 2 = 3.5%
Journal Entries
On Jan 1
Cash A/c Dr. $9,594,415
Discount on bonds payable A/c Dr. $405,585
To Bonds payable A/c $10,000,000
(Being the issuance of bond payable is recorded)
Discount value of issued bonds = $10,000,000 - $9,594,415 = $405,585
2).
On Jun
Interest expenses A/c Dr. $390,559
Discount on bonds payable A/c($405,585 ÷10) Dr.40,559
To Cash A/c($10,000,0000 × 3.5%) $350,000
(Being the payment of first semiannual interest is recorded)
3).
On Dec 31
Interest expenses A/c Dr. $390,559
Discount on bonds payable A/c($405,585*10/100) Dr.$40,559
To Cash A/c($10,000,000*3.5/100) $350,000
(Being the payment of second semiannual interest is recorded)
b). Bond Interest Expense Amount for First Year
= Interest Expenses + Amortized Discount
= $700,000 + $81,117
= $781,117
Interest expenses = $350,000 + $350,000 = $700,000
Amortized Discount = $40,559 + $40,559 = $81,117
c).The Company issued the bonds at $9,594,415 for the face amount of $10,000,000 because bonds issued at discount for $405,585 as the coupon rate is less than the market interest.
