Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method

Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, 20Y1, Smiley issued $8,300,000 of 6-year, 9% bonds at a market (effective) interest rate of 8%, receiving cash of $8,689,480. Interest is payable semiannually on April 1 and October 1.

a. Journalize the entry to record the issuance of bonds on April 1, 20Y1. If an amount box does not require an entry, leave it blank.

		fill in the blank 94f5b9f8303fff5_2	fill in the blank 94f5b9f8303fff5_3
		fill in the blank 94f5b9f8303fff5_5	fill in the blank 94f5b9f8303fff5_6
		fill in the blank 94f5b9f8303fff5_8	fill in the blank 94f5b9f8303fff5_9

b. Journalize the entry to record the first interest payment on October 1, 20Y1, 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.

		fill in the blank cd01ad0a7ffc072_2	fill in the blank cd01ad0a7ffc072_3
		fill in the blank cd01ad0a7ffc072_5	fill in the blank cd01ad0a7ffc072_6
		fill in the blank cd01ad0a7ffc072_8	fill in the blank cd01ad0a7ffc072_9

c. Why was the company able to issue the bonds for $8,689,480 rather than for the face amount of $8,300,000? The market rate of interest is the contract rate of interest.