Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method 1 Year

Question

Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method 1 Year 1 Smiley issued ss, 300 000 of 5 year, 8% bonds at a man et effect e interest rate of 6% eceiving ca of Smiley Corporation wholesales repair products to equpment manufacturers. On Apr $5,752,100. Interest is payable semiannually on April 1 and October 1 a. Sournalize the entry to record the issuance of bonds on Apni 1, Year 1. If an amount box does not require an entry, leave it blank method. (Round to the nearest dollar.) If an the first interest payment on October 1, Year 1, and amortization of bond premium for six months, using the straight-line b. Journalize the entry to record amount box does not require an entry, leave it blank c. Why was the company able to issue the bonds for $5,752,100 rather than for the face amount of $5,300,0007 the contract rate of interest. The market rate of interest is

Explanation / Answer

a. cash 5,752,100 premium on bonds payable 452,100 bonds payable 5,300,000 b interest expense 166,790 premium on bonds payable 45,210 cash 212,000 (452,100/10= 45210 cash interest paid 5,300,000*8%*1/2 212000 c the market rate of interest is lower than the contract rate of interest

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