1. Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Daan Corporation issued $3,900,000 of 9-year, 6% bonds at a market (effective) interest rate of 3%, receiving cash of $4,816,843. Interest is payable semiannually on April 1 and October 1.

   a. Journalize the entry to record the issuance of bonds on April 1, 2016. For a compound transaction, if an amount box does not require an entry, leave it blank.

   	Bonds Payable Cash Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable
   	Accounts Payable Cash Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable
   	Accounts Payable Bonds Payable Cash Discount on Bonds Payable Interest Expense Interest Payable

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

   	Bonds Payable Cash Discount on Bonds Payable Interest Expense Interest Payable Interest Receivable
   	Bonds Payable Cash Discount on Bonds Payable Interest Payable Interest Receivable Premium on Bonds Payable
   	Bonds Payable Cash Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable

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   c. Why was the company able to issue the bonds for $4,816,843 rather than for the face amount of $3,900,000?

   The market rate of interest is

   • greater than
   • less than the
   • contract rate of interest.