Exercise 14-7 (Algorithmic) Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method

Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2012, Daan Corporation issued $1,000,000 of 6-year, 9% bonds at a market (effective) interest rate of 6%, receiving cash of $1,149,309. Interest is payable semiannually on April 1 and October 1.

c. Explain why the company was able to issue the bonds for $1,149,309 rather than for the face amount of $1,000,000.

The input in the box below will not be graded, but may be reviewed and considered by your instructor.

a. Journalize the entry to record the sale of bonds on April 1, 2012. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "O" Cash Premium on Bonds Payable Bonds Payable Hide b. Journalize the entry to record the first interest payment on October 1, 2012, and amortization of bond premium for six months, using the straight-line method. (Round to the nearest dollar.) For a compound transaction, if an amount box does not require an entry, leave it blank or enter "O" Interest Expense Premium on Bonds Payable Cash