Question

Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Daan Corporation issued $1,100,000 of 4-year, 12% bonds at a market (effective) interest rate of 9%, receiving cash of $1,208,833. 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.

	Cash
	Premium on Bonds Payable
	Bonds Payable

Feedback

Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account.

The straight-line method of amortization provides equal amounts of amortization over the life of the bond.

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.

	Interest Expense
	Premium on Bonds Payable
	Cash

Answer 1

(a)-Journal entry to record the issuance of bonds on April 1, 2016

Date	Accounts Tittles and explanations	Debit ($)	Credit ($)
April 1, 2016	Cash A/c	1,208,833
	To Premium on Bonds Payable A/c		108,833
	To Bond Payable A/c		1,100,000
	[Journal entry to record the issuance of Bond]

(b)-Journal entry to record the first interest payment on October 1, 2016, and amortization of bond premium for six months, using the straight-line method.

Date	Accounts Tittles and explanations	Debit ($)	Credit ($)
October 1, 2016	Interest Expense A/c [$66,000 - $13,604]	52,396
	Premium on Bonds Payable A/c [$108,833 / 8 Periods]	13,604
	To Cash A/c [$1,100,000 x 12.00% x ½]		66,000
	[Journal entry to record the first interest payment on October 1, 2016]