Answer:
A1.Apr.1
Dr Cash $1,449,138
Cr Premium on Bonds Payable $49,138
Cr Bonds Payable $1,400,000
A2. Oct. 1
Dr Interest Expense $24,431
Dr Premium on Bonds Payable $24,569
Cr Cash $49,000
B. The BONDS was paying HIGHER INTEREST RATE of 7% to the MARKET INTEREST RATE of 6%.
Explanation:
A1. Preparation of the journal entry to record Issuance of bonds on April 1Apr.1
Dr Cash $1,449,138
Cr Premium on Bonds Payable $49,138
($1,449,138-$1,400,000)
Cr Bonds Payable $1,400,000
(To record Issuance of bonds)
A2. Preparation of the journal entry to record First interest payment on October 1 and amortization of bond premium for six months, using the straight-line method.
Oct. 1
Dr Interest Expense $24,431
($49,000-$24,569)
Dr Premium on Bonds Payable $24,569
[($1,449,138-$1,400,000)4*2]
Cr Cash $49,000
( $1,400,000 x 7% x 6/12)
(To record First interest payment and amortization of bond premium )
B. Based on the information given the reason
WHY the company was able to issue the bonds for $20,811,010 RATHER THAN for the FACE AMOUNT of $20,000,000 was because the BONDS was paying HIGHER INTEREST RATE of 7% to the MARKET INTEREST RATE of 6%.
