Question
Lerner Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Lerner Corporation issued $12,000,000 of five-year, 8% bonds at a market (effective) interest
Lerner Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Lerner Corporation issued $12,000,000 of five-year, 8% bonds at a market (effective) interest rate of 6%, receiving cash of $13,023,576. Interest is payable semiannually on April 1 and October 1.
| A. | Journalize the entries to record the following. Refer to the Chart of Accounts for exact wording of account titles.
| ||||
| B. | Explain why the company was able to issue the bonds for $13,023,576 rather than for the face amount of $12,000,000. |
| ATE | DESCRIPTION | POST. REF. | DEBIT | CREDIT | |
| 1 | Apr. 01 | Cash |
| 13,023,576.00 |
|
| 2 |
| Premium on Bonds Payable |
|
| 1,023,576.00 |
| 3 |
| Bonds Payable |
|
| 12,000,000.00 |
| 4 | Oct. 1 |
|
|
| 480,000.00 |
| 5 |
| Interest Expense |
|
|
|
| 6 |
| Premium on Bonds Payable |
| 102,358.00 | |
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