Question

Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Daan Corporation issued $7,100,000 of 6-year, 8% bonds at a market (effective) interest rate of 5%, receiving cash of $8,192,451. 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. 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 c. Why was the company able to issue the bonds for $8.192.451 rather than for the face amount of 57.100.000) The market rate of interestis y the contract rate of interest.

Answer 1

	Daan Corporation
a)	Cash			8,192,451
	premium on bonds payable				1,092,451
	Bonds payable				7,100,000
b)	interest expense			192962
	premium on bonds payable			91038
	cash				284000
c)	lower
	Emil Corp
1-May	Cash			1,788,000
	bonds payable				1,788,000
1-Nov	interest expense			89400
	cash				89,400
2015
1-Nov	Bonds payable			1,788,000
	Gain on redemption				71,520
	cash				1716480