Question

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

Answer 1

Answer:

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)