Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, 20Y1, Smiley issued $3,600,000 of 5-year, 12% bonds at a market (effective) interest rate of 9%, receiving cash of $4,027,286. Interest is payable semiannually on April 1 and October 1. a. Journalize the entry to record the issuance of bonds on April 1, 20Y1. 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, 20Y1, and amortization of bond premium for 6 months, using the straight-line method. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. c. Why was the company able to issue the bonds for $4,027,286 rather than for the face amount of $3,600,000?
Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, 20Y1, Smiley issued $3,600,000 of 5-year, 12% bonds at a market (effective) interest rate of 9%, receiving cash of $4,027,286. Interest is payable semiannually on April 1 and October 1. a. Journalize the entry to record the issuance of bonds on April 1, 20Y1. 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, 20Y1, and amortization of bond premium for 6 months, using the straight-line method. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. c. Why was the company able to issue the bonds for $4,027,286 rather than for the face amount of $3,600,000?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, 20Y1,
Smiley issued $3,600,000 of 5-year, 12% bonds at a market (effective) interest rate of 9%, receiving
cash of $4,027,286. Interest is payable semiannually on April 1 and October 1.
a. Journalize the entry to record the issuance of bonds on April 1, 20Y1. 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, 20Y1, and amortization of
bond premium for 6 months, using the straight-line method. Round to the nearest dollar. If an
amount box does not require an entry, leave it blank.
c. Why was the company able to issue the bonds for $4,027,286 rather than for the face amount of
$3,600,000?
The market rate of interest is greater than/less than the contract rate of interest.
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