Daan Corporation wholesales repair products to equipment manufacturers. On April
ID: 2426775 • Letter: D
Question
Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2014, Daan Corporation issued $4,000,000 of 7-year, 12% bonds at a market (effective) interest rate of 11%, receiving cash of $4,191,794. Interest is payable semiannually on April 1 and October 1.
a. Journalize the entry to record the issuance of bonds on April 1, 2014. 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, 2014, 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.
a. Journalize the entry to record the issuance of bonds on April 1, 2014. For a compound transaction, if an amount box does not require an entry, leave it blank.
Explanation / Answer
Answer a. Journal Entry Date Particulars Dr. Amt. Cr. Amt Apr. 1, Cash Dr. $4,191,794 2014 To Bonds - 12% $4,000,000 To Premium on Issue of Bonds $191,794 Answer b. Journal Entry Date Particulars Dr. Amt. Cr. Amt Apr. 1, Interest Exp. - Bonds Dr. $226,300 2014 Premium on Issue of Bonds Dr. 13,700 To Cash (4000000 X 12% X 6/12) $240,000 Premium on Issue of Bonds Amt to be amortized = $191794 / 7 Years X 6/12 = $13700 Interest Expense = 240000 - 13700 = 226300
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