Reference no: EM131815043

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

On the first day of its fiscal year, Robbins Company issued $2,900,000 of 7-year, 12% 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 15%, resulting in Robbins Company receiving cash of $2,530,722.

a. Journalize the entries to record the following:

1. Sale of the bonds.

2. First semiannual interest payment. (Amortization of discount is to be recorded annually.)

3. Second semiannual interest payment.

4. Amortization of discount at the end of the first year, using the straight-line method.

For a compound transaction, if an amount box does not require an entry, leave it blank.

b. Determine the amount of the bond interest expense for the first year.

c. Explain why the company was able to issue the bonds for only $2,530,722 rather than for the face amount of $2,900,000.