Lerner Corporation wholesales repair products to equipment manufacturers. On Apr

Question

Lerner Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Lerner Corporation issued $12,000,000 of five-year, 8% bonds at a market (effective) interest rate of 6%, receiving cash of $13,023,576. Interest is payable semiannually on April 1 and October 1.

Required:

Explain why the company was able to issue the bonds for $13,023,576 rather than for the face amount of $12,000,000.

A. Journalize the entries to record the following. Refer to the Chart of Accounts for exact wording of account titles. 1. Issuance of bonds on April 1, 2016. 2. First interest payment on October 1, 2016, and amortization of bond premium for six months, using the straight-line method. (Round to the nearest dollar.) B.

Explain why the company was able to issue the bonds for $13,023,576 rather than for the face amount of $12,000,000.

CHART OF ACCOUNTS Lerner Corporation General Ledger ASSETS 110 Cash 111 Petty Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 126 Interest Receivable 127 Notes Receivable 131 Merchandise Inventory 141 Office Supplies 142 Store Supplies 151 Prepaid Insurance 191 Land 192 Store Equipment 193 Accumulated Depreciation-Store Equipment 194 Office Equipment 195 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 221 Salaries Payable 231 Sales Tax Payable 232 Interest Payable 241 Notes Payable 251 Bonds Payable 252 Discount on Bonds Payable 253 Premium on Bonds Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 315 Treasury Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 351 Cash Dividends 352 Stock Dividends 390 Income Summary REVENUE 410 Sales 610 Interest Revenue 611 Gain on Redemption of Bonds EXPENSES 510 Cost of Merchandise Sold 515 Credit Card Expense 516 Cash Short and Over 521 Sales Salaries Expense 522 Office Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Repairs Expense 534 Selling Expenses 535 Rent Expense 536 Insurance Expense 537 Office Supplies Expense 538 Store Supplies Expense 541 Bad Debt Expense 561 Depreciation Expense-Store Equipment 562 Depreciation Expense-Office Equipment 590 Miscellaneous Expense 710 Interest Expense 711 Loss on Redemption of Bonds

Explanation / Answer

A-1

A-2

On First Semi Annual Interest

Journal Entries On sale of Bond Account Title and Explanation Debit($) Credit($) Cash 1,30,23,576.00      To Premium on issuancce of Bond       10,23,576.00      To Bands Payable    1,20,00,000.00 (Being bond issued at premium)

A-2

On First Semi Annual Interest

Income Statement         4,80,000.00        To Interest Expense          4,80,000.00 (being interest recognised) On Premium amortization of bond Premium on issuance of bond         1,02,357.60         To Icome Statement          1,02,357.60                             -   (being Amortization of premium amortized)

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