Question

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

Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Daan Corporation issued $7,900,000 of 7-year, 10% bonds at a market (effective) interest rate of 7%, receiving cash of $9,194,083. Interest is payable semiannually on April 1 and October 1.

a. Journalize the entry to record the issuance of bonds on April 1, 2016. For a compound transaction, if an amount box does not require an entry, leave it blank.

Cash

Premium on Bonds Payable

Bonds Payable

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-line 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.

	Interest Expense
	Premium on Bonds Payable Cash

Answer 1

Journal Entry
S. No.	Date	Particulars	Dr. Amt.	Cr. Amt.
a.	1-Apr-16	Cash	9,194,083
		Bonds Payable		7,900,000
		Premium on Issue of Bonds		1,294,083
		(record the issue of bonds)
b.	1-Oct-16	Interest Expense	302,565		$395,000 - $92435
		Premium on Issue of Bonds	92,435		$1,294,083 / 14
		Cash		395,000	$7,900,000 X 10% X 6/12
		(Record the interest paid)