Question

Entries for Issuing Bonds and Amortizing Premium by Straight Line Method year 9 bonds at market Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2016. Dann Corporation issued $4,600,000 of leffective interest rate of 8%, receiving cash of $4,868,002. Interest is payable semiannusly 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 lea b. Journalize the entry to record the first werest part on October 1, 2016, and amortization of bond prem um for six months, using the straight-Ine method. The bond premium amortization is combined with the servanwal interest payment. (Round to the nearest dollar) For a compound transaction, if an amount box does not require an entry, leave it blank c. Why was the company able to issue the bands for $4,868,002 rather than for the face amount of $4,60 The market rate of interest is the contract rate of interest

Answer 1

Solution a:

Journal Entries - Daan Corporation
Date	Particulars	Debit	Credit
1-Apr-16	Cash Dr	$4,868,002.00
	To Bond Payable		$4,600,000.00
	To Premium on Bond Payable		$268,002.00
	(To record issue of bond at premium)

solution b:

Journal Entries - Daan Corporation
Date	Particulars	Debit	Credit
1-Oct-16	Interest Expense Dr	$190,250.00
	Premium on bond payable Dr ($268,002/16)	$16,750.00
	To Cash ($4,600,000*4.5%)		$207,000.00
	(To record interest payment and premium amortization)

Solution c:

The company able to issue bonds for $4,868,002 because the market rate of interest is lower than the contract rate of interest.