Question

help please!!

Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Smiley issued $8,900,000 of 4-year, 8% bonds at a market (effective) interest rate of 7%, receiving cash of $9,205,891. Interest is payable semiannually on April 1 and October 1. a. Journalize the entry to record the issuance of bonds on April 1, Year 1. If an amount box does not require an entry, leave it blank b. Journalize the entry to record the first interest payment on October 1, Year 1, 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 c. Why was the company able to issue the bonds for $9,205,891 rather than for the face amount of $8,900,000? the contract rate of interest. The market rate of interest is

Answer 1

(a)
Date	Accounts Titles and explanation	Debit	Credit
April 1, Year 1	Cash	$ 9,205,891
	Premium on Bonds payable		$ 305,891
	Bonds payable		$ 8,900,000
	(To record the issuance of bonds )
(b)
Date	Accounts Titles and explanation	Debit	Credit
October 1, Year 1	Interest expense   - Bal. Fig.	$ 317,764
	Premium on Bonds payable                ( $ 305,891 / 4 years) x 1 / 2	$ 38,236
	Cash                 ( $ 8,900,000 x 8% x 1/ 2)		$ 356,000
	(To record the first interest payment )
c)	The market rate of interest is Lower than the contract rate of interest