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 $3,900,000 of 7-year, 8% bonds at a market (effective) interest rate of 6%, receiving cash of $4,340,546. Interest is payable semiannually on April 1 and October 1.

a. Journalize the entry to record the issuance of bonds on April 1, 20Y1. If an amount box does not require an entry, leave it blank.

		fill in the blank 634630fc7fca05e_2	fill in the blank 634630fc7fca05e_3
		fill in the blank 634630fc7fca05e_5	fill in the blank 634630fc7fca05e_6
		fill in the blank 634630fc7fca05e_8	fill in the blank 634630fc7fca05e_9

b. Journalize the entry to record the first interest payment on October 1, 20Y1, and amortization of bond premium for six months, using the straight-line method. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

		fill in the blank d03e5007dfef06b_2	fill in the blank d03e5007dfef06b_3
		fill in the blank d03e5007dfef06b_5	fill in the blank d03e5007dfef06b_6
		fill in the blank d03e5007dfef06b_8	fill in the blank d03e5007dfef06b_9

c. Why was the company able to issue the bonds for $4,340,546 rather than for the face amount of $3,900,000? The market rate of interest is the contract rate of interest.