Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method

Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Daan Corporation issued $6,300,000 of 5-year, 12% bonds at a market (effective) interest rate of 10%, receiving cash of $6,786,469. 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.

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.

c. Why was the company able to issue the bonds for $6,786,469 rather than for the face amount of $6,300,000?

The market rate of interest is the contract rate of interest.

2)

Entries for Issuing and Calling Bonds; Gain

Emil Corp. produces and sells wind-energy-driven engines. To finance its operations, Emil Corp. issued $529,000 of 20-year, 11% callable bonds on May 1, 20Y1, at their face amount, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year.

Journalize the entries to record the following selected transactions:

20Y1
May 1	Issued the bonds for cash at their face amount.
Nov. 1	Paid the interest on the bonds.
20Y5
Nov. 1	Called the bond issue at 98, the rate provided in the bond indenture. (Omit entry for payment of interest.)

Issued the bonds for cash at their face amount.

20Y1, May 1

Paid the interest on the bonds.

20Y1, Nov. 1

Called the bond issue at 98, the rate provided in the bond indenture. (Omit entry for payment of interest.) For a compound transaction, if an amount box does not require an entry, leave it blank.

20Y5, Nov. 1