Question

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

Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Smiley issued $20,000,000 of five-year, 9% bonds at a market (effective) interest rate of 8%, receiving cash of $20,811,010. Interest is payable semiannually on April 1 and October 1.

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

Answer 1

Smiley issued $20,000,000 of five-year, 9% bonds at a market (effective) interest rate of 8%, receiving cash of $20,811,010.

The journal entry is as follows:

On April 1,

Cash A/c Dr. $20,811,010

To Bonds payable A/c $20,000,000

To Premium on bonds payable $811,010

(To record the issuance of bonds)