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

Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Daan Corporation issued $2,700,000 of 4-year, 11% bonds at a market (effective) interest rate of 9%, receiving cash of $2,878,089. Interest is payable semiannually 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, leave it blank.

		fill in the blank a5772cfaaff5009_2	fill in the blank a5772cfaaff5009_3
		fill in the blank a5772cfaaff5009_5	fill in the blank a5772cfaaff5009_6
		fill in the blank a5772cfaaff5009_8	fill in the blank a5772cfaaff5009_9

b. Journalize the entry to record the first interest payment on October 1, 2016, 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.) For a compound transaction, if an amount box does not require an entry, leave it blank.

		fill in the blank 4bd17f09103d035_2	fill in the blank 4bd17f09103d035_3
		fill in the blank 4bd17f09103d035_5	fill in the blank 4bd17f09103d035_6
		fill in the blank 4bd17f09103d035_8	fill in the blank 4bd17f09103d035_9

c. Why was the company able to issue the bonds for $2,878,089 rather than for the face amount of $2,700,000?

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