3. EX. 14-07.ALGO (Algorithmic) Entries for Issuing Bonds and Amortizing Premium

Question

3. EX. 14-07.ALGO (Algorithmic) Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method manufacturers. On Aprit 1, 2016, Daan Daan Corporation wholesales repair products to equipment corporation issued $6,300,000 of 10-year, 6% bonds at a market (effective) interest rate of 4%, cash of $7,330,141. Interest is payable semiannually on April 1 and October 1. receiving Page 3 of 7 a. Journalize the entry to record the ssuance 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-lne 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 issue the bonds for $7,330,141 rather than for the face amount of $6,300,000? The market rate of interest is the contract rate of interest. 4. EX.14-08.BLANKSHEET.ALGO (Algorithmic)

Explanation / Answer

Journal enty

c) The market rate of interest is Lower than the contract rate of interest.

No Date accounts & explanation debit credit (a) Apr 1,2016 Cash 7330141 Bonds payable 6300000 Premium on bonds payable 1030141 (To record issue bonds payable) (b) Oct 1,2016 Interest expense 137493 Premium on bonds payable (1030141/20) 51507 Cash (6300000*6%*6/12) 189000 (To record interest)

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