Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2014, Daan...

Question:

Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2014, Daan Corporation issued $4,000,000 of 7-year, 12% bonds at a market (effective) interest rate of 11%, receiving cash of $4,191,794. Interest is payable semiannually on April 1 and October 1.

a. Journalize the entry to record the issuance of bonds on April 1, 2014. 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, 2014, and amortization of bond premium for six months, using the straight-line method. (Round to the nearest dollar.) For a compound transaction, if an amount box does not require an entry, leave it blank.

Bond Premiums:

When the interest rate offered on a bond exceeds the interest rates offered by other instruments on the market, the bond will be sold at a premium price. This premium should be amortized over the bond's life. Amortization can be calculated through the straight-line method or the effective interest method.

Answer and Explanation:

Part (a)

DateAccountDebitCreditExplanation
April 1, 2014Cash$4,191,794 Record inflow of cash from issuance
Bonds Payable $4,000,000Record bonds at...

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Issuing Bonds at a Discount or a Premium

from Accounting 101: Financial Accounting

Chapter 10 / Lesson 10
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