Question
1- Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Daan Corporation issued $4,500,000 of 6-year, 11% bonds at a market (effective)
1- Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Daan Corporation issued $4,500,000 of 6-year, 11% bonds at a market (effective) interest rate of 8%, receiving cash of $5,133,494. Interest is payable semiannually on April 1 and October 1.
a- Journalize the entry to record the issuance of bonds on April 1, 2016.
b- Journalize the entry to record the first interest payment on October 1, 2016, and amortization of bond premium for six months, using the straight-line method. The bond premium amortization is combined with the semiannual interest payment. (Round to the nearest dollar.)
c- Why was the company able to issue the bonds for $5,133,494 rather than for the face amount of $4,500,000? The market rate of interest is _______ the contract rate of interest.
2- Adele Corp., a wholesaler of music equipment, issued $30,500,000 of 20-year, 10% callable bonds on March 1, 20Y1, at their face amount, with interest payable on March 1 and September 1. The fiscal year of the company is the calendar year.
Journalize the entries to record the following selected transactions. Refer to the Chart of Accounts for exact wording of account titles.
20Y1
Mar. 1 Issued the bonds for cash at their face amount.
Sept. 1 Paid the interest on the bonds.
20Y5
Sept. 1 Called the bond issue at 104, the rate provided in the bond indenture. (Omit entry for payment of interest.)
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