Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Shunda issued $30,000,000 of five-year, 10% bonds

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Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Shunda issued $30,000,000 of five-year, 10% bonds

at a market (effective) interest rate of 8%, receiving cash of $32,433,150. Interest is payable semiannually. Shunda’s fiscal year begins on January 1. The company uses the interest method.
a. Journalize the entries to record the following:

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

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

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

b. Determine the bond interest expense for the first year. Round to the nearest dollar.

Annual interest paid $
Less premium amortized
Interest expense for first year

Business

1 answer:

Nady [3.6K] · Answer 1 · 2026-03-25T18:44:13+03:00

Response and Clarification:a. The journal entry is displayed below:-

1. Cash Dr, $32,433,150

To Premium on Bonds Payable $2,433,150

To Bonds Payable $30,000,000

(Sale of bonds is recorded)

2. Interest Expense Dr, $1,297,326

($32,433,150 × 4%)

Premium on Bonds Payable Dr, $202,674

To Cash $1,500,000

($30,000,000 × 5%)

(First semiannual interest payment, including premium amortization is recorded)

3. Interest Expense Dr, $1,289,219

($32,433,150 - $202,674) × 4%

Premium on Bonds Payable Dr, $210,781

To Cash $1,500,000

(Second semiannual interest payment, including premium amortization is recorded)

($30,000,000 × 5%)

b. Total annual interest paid = $3,000,000

Less: Premium amortized = $364,094

($202,674 + $161,420)

Interest expense for the first year = $2,635,906