Question

fill in 4 & 5

Bond Discount, Entries for Bonds Payable Transactions On July 1, Year 1, Danzer Industries Inc. Issued $7,400,000 of 8-year, 8% bonds at a market (effective) Interest rate of 10%, receiving cash of $6,597,994. 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 on July 1, Year 1. If an amount box does not require an entry, leave it blank Cash 6,597,994 Discount on Bonds Payable 802,005 Bonds Payable 7,400,000 2. Journalize the entries to record the following: If an amount box does not require an entry, leave it blank. a. The first semiannual interest payment on December 31, Year 1, and the amortization of the bond discount, using the straight-line method. (Round your answer to the nearest dollar.) Interest Expense Discount on Bonds Payable b. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight-line method. (Round your answer to the nearest dollar) 396,251 Interest Expense Discount on Bonds Payable 100_251 Cash 3. Determine the total interest expense for Year 1. Round to the nearest dollar s 396,251

Answer 1

Solution 4:

Yes, bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest.

Solution 5:

Computation of bond price
Table values are based on:
n=	16
i=	5%
Cash flow	Table Value	Amount	Present Value
Present value of face amount	0.45811	$7,400,000	$3,390,014
Present value of semi annual interest payments	10.83777	$296,000	$3,207,980
Price received for the bonds			$6,597,994