Entries for issuing bonds and amortizing premium by straight$-$line method

Smiley Corporation wholesales repair products to equipment manufacturers. On April $1,20Y1,$ Smiley issued $$7,000,000$ of $9-$year, $7\%$ bonds at a market $($effective$)$

interest rate of $5\%,$ receiving cash of $$8,004,735.$ Interest is payable semiannually on April $1$ and October $1.$

a$.$ Journalize the entry to record the issuance of bonds on April $1,20$Y$1.$ If an amount box does not require an entry, leave it blank.

Premium on Bonds Payable

Bonds Payable

$$

Bonds Payable $$

Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account.

The straight$-$line method of amortization provides equal amounts of amortization over the life of the bond.

b$.$ Journalize the entry to record the first interest payment on October $1,20$Y$1,$ and amortization of bond premium for $6$ months, using the straight$-$line method. Round

to the nearest dollar. If an amount box does not require an entry, leave it blank.

Interest Expense

Premium on Bonds Payable

c$.$ Why was the company able to issue the bonds for $$8,004,735$ rather than for the face amount of $$7,000,000?$

the contract rate of interest.

$2$ more Check My Work uses remaining.