Question

3.

1. 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 $2,000,000 of 10-year, 12% bonds at a market (effective) interest rate of 11%, receiving cash of $2,119,503. 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.

   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.

   c. Why was the company able to issue the bonds for $2,119,503 rather than for the face amount of $2,000,000?

   The market rate of interest is   the contract rate of interest.

2.

Entries for Issuing and Calling Bonds; Loss

Adele Corp., a wholesaler of music equipment, issued $18,190,000 of 20-year, 14% callable bonds on March 1, 20Y1, at their face amount, with interest payable on March 1 and September 1. The fiscal year of the company is the calendar year.

20Y1
Mar. 1	Issued the bonds for cash at their face amount.
Sept. 1	Paid the interest on the bonds.
20Y5
Sept. 1	Called the bond issue at 104, the rate provided in the bond indenture. (Omit entry for payment of interest.)

Journalize the entries to record the above selected transactions.

Issued the bonds for cash at their face amount.

20Y1 Mar. 1

Paid the interest on the bonds.

20Y1 Sept. 1

Called the bond issue at 104, the rate provided in the bond indenture. (Omit entry for payment of interest.) For a compound transaction, if an amount box does not require an entry, leave it blank.

20Y5 Sept. 1

*please answer both- if you can't please answer number 3*

Answer 1

3
a
Cash	2119503
Bonds payable		2000000
Premium on Bonds payable		119503
b
Interest expense	114025
Premium on Bonds payable	5975		=119503/10*6/12
Cash		120000	=2000000*12%*6/12
c
The market rate of interest is less than the contract rate of interest.

2
20Y1 Mar. 1	Cash	18190000
	Bonds payable		18190000
20Y1 Sept. 1	Interest expense	1273300		=18190000*14%*6/12
	Cash		1273300
20Y5 Sept. 1	Bonds payable	18190000
	Loss on redemption of binds	727600
	Cash		18917600	=18190000*1.04