Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, 20Y1, Smiley issued $23,100,000 of five-year, 9% bonds at a market (effective) interest rate of 8%, receiving cash of $24,036,717. Interest is payable semiannually on April 1 and October 1.Required: a. Journalize the entries to record the following. Refer to the Chart of Accounts for exact wording of account titles.1.Issuance of bonds on April 1, 20Y1.2.First interest payment on October 1, 20Y1, and amortization of bond premium for six months, using the straight-line method. (Round to the nearest dollar.) b. Explain why the company was able to issue the bonds for $24,036,717 rather than for the face amount of $23,100,000.C. The bonds sell for more than their face amount because the market rate of interest is______________ the contract rate of interest. Investors ____________ willing to pay more for bonds that pay a higher rate of interest (contract rate) than the rate they could earn on similar bonds (market rate).

Answered: Smiley Corporation wholesales repair…

Financial Accounting

14th Edition

ISBN:9781305088436

Author:Carl Warren, Jim Reeve, Jonathan Duchac

Publisher:Carl Warren, Jim Reeve, Jonathan Duchac

Chapter14: Long-term Liabilities: Bonds And Notes

Section: Chapter Questions

Problem 6PA: Saverin, Inc. produces and sells outdoor equipment. On July 1, 2016, Saverin, Inc. issued 62,500,000...

See similar textbooks

Related questions

Question

Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, 20Y1, Smiley issued $23,100,000 of five-year, 9% bonds at a market (effective) interest rate of 8%, receiving cash of $24,036,717. Interest is payable semiannually on April 1 and October 1.

Required:

a. Journalize the entries to record the following. Refer to the Chart of Accounts for exact wording of account titles.

1.	Issuance of bonds on April 1, 20Y1.
2.	First interest payment on October 1, 20Y1, and amortization of bond premium for six months, using the straight-line method. (Round to the nearest dollar.)

b. Explain why the company was able to issue the bonds for $24,036,717 rather than for the face amount of $23,100,000.

C. The bonds sell for more than their face amount because the market rate of interest is______________ the contract rate of interest. Investors ____________ willing to pay more for bonds that pay a higher rate of interest (contract rate) than the rate they could earn on similar bonds (market rate).

Expert Solution

Step 1

$P r e m i u m o n b o n d s t o b e a m o r t i z e d = C a s h r e c e i v e d - F a c e v a l u e o f b o n d = $ 24, 036, 717 - $ 23, 100, 000 = $ 936, 717 T o t a l s e m i a n n u a l p e r i o d s = 5 \times 2 = 10 p e r i o d s$

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions