Explain why the company was able to issue the bonds

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Question

Smiley Company wholesales repair products to equipment manufacturers. On April 1, 20Y1, Smiley issued $20,000,000 of 5-year, 9% bonds at a market (effective) interest rate of 8%, receiving cash of $20,811,010. Interest is payable semiannually on April 1 and October 1. Journalize the entries to record the following: Issuance of bonds on April 1, 20Y1. First interest payment on October 1, 20Y1, and amortization of bond premium for 6 months, using the straight-line method. Explain why the company was able to issue the bonds for $20,811,010 rather than for the face amount of $20,000,000.

Reference no: EM133674907

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