for the face amount of $10,000,000. usue eBonds for only $9,594,415 rather than
ID: 2552910 • Letter: F
Question
for the face amount of $10,000,000. usue eBonds for only $9,594,415 rather than EX 14-7 Entries for issuing bonds and amortizing premium by straight-line method oBJ.2,3 Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Smiley Corporation issued $20,000,000 of five-year, 9% bonds at a market (effec- tive) interest rate of 8%, receiving cash of $20,811,010. Interest is payable semiannually on April 1 and October 1. Journalize the entries to record the following: a. Issuance of bonds on April 1. b. First interest payment on October 1 and amortization of bond premium for six months, e method. The bond premium amortization is combined with the using the straight-lin semiannual interest payment. Round to the nearest dollar. Explain why the company was able to issue the bonds for $20,811,010 rather than for the face amount of $20,000,000. c. OBJ.3 ng and calling bonds; lossExplanation / Answer
a. Issuance of Bonds
b. First Interest Payment and amortization of premium
Since the company uses straight-line amortization, amortization will be recorded each time interest is paid. On a 5-year semiannual bond, there will be 10 payments.
Interest expense is $900,000 less the amount of the amortized premium of $ 81,101.
Answer c
Market Value of Bond is the present value of its interest payments and final redemption value. In our case interest on bonds is paid at 9% per annum and marker rate of interest at that time is 8%, discounted value (present value) of the cash outflow is more than face value of the bond.
This can be seen from the following calculations:
Minor difference is due to approximation of PVIF
Cash 2,08,11,010 Bonds Payable 2,00,00,000 Premium on Bonds Payable 8,11,010Related Questions
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