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.

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