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 $5,500,000 of 7-year, 8% bonds at a market (effective) interest rate of 7%, receiving cash of $5,800,313. 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.

		fill in the blank 355f4bfc7f8d061_2	fill in the blank 355f4bfc7f8d061_3
		fill in the blank 355f4bfc7f8d061_5	fill in the blank 355f4bfc7f8d061_6
		fill in the blank 355f4bfc7f8d061_8	fill in the blank 355f4bfc7f8d061_9

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.

		fill in the blank a28b92fb8f8cf9d_2	fill in the blank a28b92fb8f8cf9d_3
		fill in the blank a28b92fb8f8cf9d_5	fill in the blank a28b92fb8f8cf9d_6
		fill in the blank a28b92fb8f8cf9d_8	fill in the blank a28b92fb8f8cf9d_9

c. Why was the company able to issue the bonds for $5,800,313 rather than for the face amount of $5,500,000?

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