Question
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
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 $7,400,000 of 10-year, 12% bonds at a market (effective) interest rate of 9%, receiving cash of $8,843,880. 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.
Cash | |||
Premium on Bonds Payable | |||
Bonds Payable |
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.
Interest Expense | |||
c. Why was the company able to issue the bonds for $8,843,880 rather than for the face amount of $7,400,000?
The market rate of interest is less than the contract rate of interest.
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