Question - 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 $6,700,000 of 10-year, 10% bonds at a market (effective) interest rate of 9%, receiving cash of $7,135,765. Interest is payable semiannually on April 1 and October 1.
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.
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.
c. Explain why the company was able to issue the bonds for $7,135,765 rather than for the face amount of $6,700,000. The input in the box below will not be graded, but may be reviewed and considered by your instructor.