1. 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 $7,800,000 of 8-year, 10% bonds at a market (effective) interest rate of 7%, receiving cash of $9,215,011. 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.

   	Bonds PayableCashDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds Payable	- Select -	- Select -
   	Accounts PayableCashDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds Payable	- Select -	- Select -
   	Accounts PayableBonds PayableCashDiscount on Bonds PayableInterest ExpenseInterest Payable	- Select -	- Select -

   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.

   	Bonds PayableCashDiscount on Bonds PayableInterest ExpenseInterest PayableInterest Receivable	- Select -	- Select -
   	Bonds PayableCashDiscount on Bonds PayableInterest PayableInterest ReceivablePremium on Bonds Payable	- Select -	- Select -
   	Bonds PayableCashDiscount on Bonds PayableInterest ExpenseInterest PayablePremium on Bonds Payable	- Select -	- Select -

   c. Why was the company able to issue the bonds for $9,215,011 rather than for the face amount of $7,800,000? The market rate of interest is

   greater than less than

   the contract rate of interest.