Question

Bond discount, entries for bonds payable transactions, interest method of amortizing bond discount Journal Instructions Chart of Accounts Final Question Instructions On July 1, 20Y1, Danzer Industries Inc. issued $40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of $37,282,062. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Required: 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds. 2. Journalize the entries to record the following: a. The first semiannual interest payment on December 31, 20Y1, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.) b. The interest payment on June 30, 20Y2, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.) 3. Determine the total interest expense for 20Y1. *Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

Amortization table
Date	Interest Payment($40,000,000*3.50%)	Interest expenses(Bond carrying amount*4%)	Discount amorrtization	Unamortized discount	Bond carrying amount
1				27,17,938	3,72,82,062
2	14,00,000	14,91,282	91,282	26,26,656	3,73,73,344
3	14,00,000	14,94,934	94,934	25,31,722	3,74,68,278
	Date	Accounts and explanation	Debit(in $)	Credit(in $)
	1 July 20Y1	Cash	3,72,82,062
		Discount on Bonds Payable	27,17,938
		Bonds Payable		4,00,00,000
		(To bonds issued at discount)
	1 Dec 20Y1	Interest Expenses	14,91,282
		Discounts on Bond payable		91,282
		Cash		14,00,000
		(Discount on Bonds amortized)
	30 Jun 20Y2	Interest Expenses	14,94,934
		Discounts on Bond payable		94,934
		Interest payable		14,00,000
		(Discount on Bonds amortized)
	Total Interest expenses for 20Y1 =$1,491,282