**Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method**Favreau Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Favreau Corporation issued $3,600,000 of 9-year, 10% bonds at a market (effective) interest rate of 9%, receiving cash of $3,818,878. Interest is payable semiannually on April 1 and October 1.### a. Journalize the entry to record the issuance of bonds on April 1. If an amount box does not require an entry, leave it blank.**Journal Entry**:- (Dropdown menu for account selection) | (Text box for dollar amount)- (Dropdown menu for account selection) | (Text box for dollar amount)- (Dropdown menu for account selection) | (Text box for dollar amount)### b. Journalize the entry to record the first interest payment on October 1 and amortization of bond premium for six months, using the straight-line method. The bond premium amortization is combined with the semiannual interest payment. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.**Journal Entry**:- (Dropdown menu for account selection) | (Text box for dollar amount)- (Dropdown menu for account selection) | (Text box for dollar amount)- (Dropdown menu for account selection) | (Text box for dollar amount)### c. Why was the company able to issue the bonds for $3,818,878 rather than for the face amount of $3,600,000? The market rate of interest is __(Text box for answer)__ the contract rate of interest.---**Explanation for Educators**:- **Dropdown Menus**: These are used for selecting the appropriate accounts for the journal entries.- **Text Boxes**: These are used for entering the monetary values associated with each account.- **Journal Entry (a)**: Records the issuance of bonds. This typically includes crediting Bonds Payable for the face amount and debiting Cash for the received amount while balancing any premium.- **Journal Entry (b)**: Combines the interest payment with the amortization of the bond premium. This involves interest expense over the period and adjusting for the premium.- **Question (c)**: Engages students to understand why the market rate impacts the issuance price of the bonds. The premium occurs because the market

A bond is a borrowing security issued by a company to raise funds from the market by making an…

Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method Favreau Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Favreau Corporation issued $3,600,000 of 9-year, 10% bonds at a market (effective) interest rate of 9%, receiving cash of $3,818,878. Interes is payable semiannually on April 1 and October 1. a. Journalize the entry to record the issuance of bonds on April 1. 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 and amortization of bond premium for six months, using the straight-line method. The bond premium amortization is combined with the semiannual interest payment. 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 $3,818,878 rather than for the face amount of $3,600,000? The market rate of interest is the contract rate of interest.

Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method Favreau Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Favreau Corporation issued $3,600,000 of 9-year, 10% bonds at a market (effective) interest rate of 9%, receiving cash of $3,818,878. Interes is payable semiannually on April 1 and October 1. a. Journalize the entry to record the issuance of bonds on April 1. 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 and amortization of bond premium for six months, using the straight-line method. The bond premium amortization is combined with the semiannual interest payment. 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 $3,818,878 rather than for the face amount of $3,600,000? The market rate of interest is the contract rate of interest.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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