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

Oct 1	Interest expense	116499
	Premium on bonds payable (530023/20)	26501
	Cash (260000011%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 ago

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