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

Favreau Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Favreau Corporation issued $4,700,000 of 10-year, 6% bonds at a market (effective) interest rate of 5%, receiving cash of $5,066,344. Interest is payable semiannually on April 1 and October 1.

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

		fill in the blank 9d3ef803efe8033_2	fill in the blank 9d3ef803efe8033_3
		fill in the blank 9d3ef803efe8033_5	fill in the blank 9d3ef803efe8033_6
		fill in the blank 9d3ef803efe8033_8	fill in the blank 9d3ef803efe8033_9

b. Journalize the entry to record the 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. If an amount box does not require an entry, leave it blank.

		fill in the blank 7c15c8fa800ffcb_2	fill in the blank 7c15c8fa800ffcb_3
		fill in the blank 7c15c8fa800ffcb_5	fill in the blank 7c15c8fa800ffcb_6
		fill in the blank 7c15c8fa800ffcb_8	fill in the blank 7c15c8fa800ffcb_9

c. Why was the company able to issue the bonds for $5,066,344 rather than for the face amount of $4,700,000?

The market rate of interest is the contract rate of interest.