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 $2,900,000 of 6-year, 7% bonds at a market (effective) interest rate of 4%, receiving cash of $3,360,028. 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 e041aefabfcdf8d_2	fill in the blank e041aefabfcdf8d_3
		fill in the blank e041aefabfcdf8d_5	fill in the blank e041aefabfcdf8d_6
		fill in the blank e041aefabfcdf8d_8	fill in the blank e041aefabfcdf8d_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 9b03af027fcffe7_2	fill in the blank 9b03af027fcffe7_3
		fill in the blank 9b03af027fcffe7_5	fill in the blank 9b03af027fcffe7_6
		fill in the blank 9b03af027fcffe7_8	fill in the blank 9b03af027fcffe7_9

c. Why was the company able to issue the bonds for $3,360,028 rather than for the face amount of $2,900,000?

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