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 $8,200,000 of 4-year, 6% bonds at a market (effective) interest rate of 3%, receiving cash of $9,120,769. Interest is payable semiannually on April 1 and October 1. a. Journalize the entry to record the issuance of bonds on April 1, 2011. If an amount box does not require an entry, leave it blank. Cash Premium on Bonds Payable Bonds Payable 9,120,769 8,200,000 X 920,769 X Feedback Check My Work 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, 20Y1, 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 130,904 Premium on Bonds Payable 115,096 Cash 246,000 Feedback Check My Work 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. c. Why was the company able to issue the bonds for $9,120,769 rather than for the face amount of $8,200,000? The market rate of interest is less than the contract rate of interest. Feedback Check My Work Bonds will be issued for either a higher or lower amount than the face value when the market and contract rates of interest are different. Feedback Check My Work