On the first day of its fiscal year, Woodard Company issued $12,000,000 of 10-year, 8% 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 10%, resulting in Woodard Company receiving cash of $10,504,541.
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Journalize the entries to record the following:
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Issuance of bonds.
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First semiannual interest payment. (Amortization of discount is to be recorded annually.)
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Second semiannual interest payment.
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Amortization of discount at the end of the fiscal year, using the straight-line method. (Round to the nearest dollar.)
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Determine the amount of the bond interest expense for the first year.
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Explain why the company was able to issue the bonds for only $10,504,541 rather than for the face amount of $12,000,000.