Question
In: Accounting
Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Daan Corporation issued $2,600,000...
Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Daan Corporation issued $2,600,000 of 10-year, 11% bonds at a market (effective) interest rate of 8%, receiving cash of $3,130,023. 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 f9226affffb1020_2 | fill in the blank f9226affffb1020_3 | ||
| fill in the blank f9226affffb1020_5 | fill in the blank f9226affffb1020_6 | ||
| fill in the blank f9226affffb1020_8 | fill in the blank f9226affffb1020_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 db2b7efac043f81_2 | fill in the blank db2b7efac043f81_3 | ||
| fill in the blank db2b7efac043f81_5 | fill in the blank db2b7efac043f81_6 | ||
| fill in the blank db2b7efac043f81_8 | fill in the blank db2b7efac043f81_9 |
c. Why was the company able to issue the bonds for $3,130,023 rather than for the face amount of $2,600,000?
The market rate of interest is the contract rate of interest.
Solutions
Expert Solution
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.
| Apr 1 | Cash | 3130023 | |
| Bonds payable | 2600000 | ||
| Premium on bonds payable | 530023 |
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.
| Oct 1 | Interest expense | 116499 | |
| Premium on bonds payable (530023/20) | 26501 | ||
| Cash (2600000*11%*6/12) | 143000 |
c. Why was the company able to issue the bonds for $3,130,023 rather than for the face amount of $2,600,000?
The market rate of interest is lower than the contract rate of interest.
ekkarill92 answered 1 year agoRelated Solutions
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