Favreau Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Favreau Corporation issued $35,000,000
Question:
Favreau Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Favreau Corporation issued $35,000,000 of five-year, 7% bonds at a market (effective) interest rate of 6%, receiving cash of $36,492,785. Interest is payable semiannually on April 1 and October 1. Journalize the entries to record the following:
a. Issuance of bonds on April 1.
b. First interest payment on October 1 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.
c. Explain why the company was able to issue the bonds for $36,492,785 rather than for the face amount of $35,000,000.
Step by Step Answer:
Accounting
ISBN: 9781337902687
28th Edition
Authors: Carl S. Warren, Christine Jonick, Jennifer Schneider